Project delays push down 2005 budget deficit

Urip Hudiono, The Jakarta Post/Jakarta

The government is expecting a narrower deficit for this year's state budget, a finance ministry official says, with delays in some development projects putting the brakes on spending amid higher-than-expected revenues.

The Ministry of Finance's Director General of the Treasury, Mulia P. Nasution, said on Friday this year's budget deficit may amount to only 0.5 percent of the gross domestic product (GDP), instead of the targeted 0.9 percent -- or Rp 23.2 trillion (some US$2.3 billion).

"Although government spending is expected to rise within this year's last two months, some of it will be carried over to next year," Mulia said.

"State revenues from taxation for this year will likely be higher as well, so we are expecting a lower deficit -- hopefully under 0.5 percent (of the GDP)."

Government expenditures that will likely be unrealized and carried over to next year, Mulia added, included several post- tsunami reconstruction projects in Aceh, as well as several education, health and rural infrastructure development projects the government had planned for this year as a way to mitigate the impact on the poor for this year's fuel price hikes.

"There are also several government procurement projects whose contracts have recently been signed, but which will only be completed by April next year," he added.

With the economy still relying on government spending, a lower deficit from unrealized government expenditures could also hamper growth, as shown in this year's first and second quarter year-on- year growth of only 6.35 percent and 5.54 percent, respectively, as compared to an average of more than 6.5 percent during the same periods last year.

Mulia did not mention the total value of the delayed projects, pending their exact financial details from related ministries and state agencies.

The total funds allocated this year for the post-tsunami reconstruction projects in Aceh amounted to some Rp 10 trillion, while the infrastructure projects nationwide was around Rp 20 trillion.

Last year, the budget deficit amounted to Rp 23.8 trillion, the government's official budgetary report stated, which is lower than the Rp 26.3 trillion -- or 1.3 percent of the GDP -- as previously expected.

For 2006, the government is expecting a budget deficit of Rp 22.4 trillion, or 0.7 percent of the GDP.

"The budget deficit for next year until 2009 will be different than this year, as we are prepared to widen it to stimulate higher economic growth and create more jobs," Mulia said.

"We will also improve the efficiency of ministries and state agencies so they will be allocated on time."

This year's lower-than-expected deficit may come as an irony, as the government had previously mentioned how the deficit could reach 1.3 percent of the GDP, as one of its arguments to cut the fuel subsidy costs -- which were multiply rapidly due to surging oil prices -- thereby increasing domestic fuel prices in the name of fiscal sustainability.