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The Republic of Indonesia June 2009. 2 Outcome of Budget for Fiscal Year 2008 In Billion Rupiah.

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Presentation on theme: "The Republic of Indonesia June 2009. 2 Outcome of Budget for Fiscal Year 2008 In Billion Rupiah."— Presentation transcript:

1 The Republic of Indonesia June 2009

2 2 Outcome of Budget for Fiscal Year 2008 In Billion Rupiah

3 3 Slower Economic Growth Forecasted for 2009 Breakdown of GDP Growth Quarterly GDP Growth Source: Ministry of Finance, Central Bureau of Statistics *Preliminary estimates

4 4 Crisis Control in the Financial Markets Supporting the Banking and Capital Market Systems  Place government funds with state-owned banks to increase liquidity in the banking system  Increase the amount of deposits guaranteed by the government in the banking system  Strengthen the government’s supervisory and enforcement capacity over capital markets  Prepare crisis protocol (implementation of the Financial System Stability Committee (FSSC)  Manage state-owned enterprises’ foreign exchange transactions to reduce speculation  Maintain a sufficient level of foreign exchange reserves through trade financing facilities and prevention of illegal imports  Requiring greater disclosure on large-sized purchases of foreign currency against IDR to curb speculative pressure on IDR Ensuring Foreign Exchange Stability

5 5 Stimulating Real Sector Growth  Recognize the importance of monetary policy support, as deemed appropriate for domestic conditions Bank Indonesia lowering BI rate to 8.75% in Jan-09 when inflation pressure has slowed Indonesian banks have started cutting their lending rates in response to the central banks’ rate cut to accelerate real sector growth  Accelerate the disbursement of projects for government and state-owned enterprise projects in 1Q and 2Q  Support for real sector and export promotion such as government guarantee for trade financing  Implement Fiscal Stimulus and provides additional fiscal stimulus for business and infrastructure projects  Reduce fuel prices, apply an automatic premium gasoline price adjustment and provide incentives for diesel price to reduce manufacturing operational costs

6 6 Real Sector Policies  Decrease Corporate Income tax to move Industries Insentif pajak untuk perusahaan masuk Bursa  Tax Subsidy for Oil and Gas Industry  Reduce in Import tax for capital goods Penurunan Bea masuk Bahan baku dan Bahan Modal  Electricity tariff Discount for Industry Diskon tarif listrik dan Penurunan harga BBM untuk Industri  Percepatan pencairan APBN dan APBD  Decrease Policy Rate as Inflation Rate pressure ease.  Place government funds with state-owned banks to increase liquidity in the banking system  The Availability of low cost credit (Interest Subsidy)  Trade Financing Facility to support Export  Ease in Kemudahan dalam pembebasan Lahan  Sectoral Coordination  Central and Regional Coordination by amendment of PDRD Bill Liquidity and Financing Fiscal Facilities Non-fiscal Facilities 6

7 7 Fiscal Stimulus in Place for 2009  Support from infrastructure and national programs, such as:  Additional peoples empowerment (PNPM) program to alleviate property  Expansion of credit program (KUR) to accelerate the development of the primary sectors  Additional infrastructure projects for job creation activities Accelerate job creation and foster small scale businesses  Subsidies on medicine, and cooking oil  Direct subsidies (cash transfer and conditional cash transfer) for low-income households  Provides more direct and indirect subsidies to education and health sector Boosting the society’s purchasing power  Import duty facility on selected capital goods and materials  Export financing and guarantee  Tax rate reduction on corporate income, individual income and increase minimum threshold for employee tax  Discount on electricity peak-hour charge for industries and reduction on diesel fuel price Stimulate trade and promote entrepreneurships 123

8 8 Assumptions on Macroeconomic Indicators OriginalAdjustedOriginalAdjusted GDP growth rate6.0% %Average IDR/USD9,40011,000 Average inflation rate6.2%5.0% - 6.0%Average oil production960,000 barrels/day Interest rate on 3-month short-term SBI7.5% Average ICPUS$80/barrelUS$ 45 – US$ 60 /barrel 2009 Budget Outlook with Safety Net and Crisis Prevention Mechanism  The 2009 budget is designed to give the Government enough room to adjust to any potential impact of the global financial crisis Assumption 1 USD = IDR 9,400 for Original Budget, 1 USD = IDR 11,000 for Budget Outlook * Bonds in foreign currency are issued globally Source: Ministry of Finance EXPENDITURE OriginalAdjusted Central Government’s own expenditure$76.2bn$62.3bn Capital and recurrent expenditure$32.3bn$27.6bn Debt interest service$10.8bn$10.1bn Total subsidy$17.7bn$11.2bn Others$15.4bn$13.4bn Transfers to regional Governments$34.1bn$27.6bn Total expenditure$110.3bn$89.8bn Total expenditure as % of GDP19.47%18.01% Memo: Stimulus spending$ 1.3bn$ 1.9bn REVENUE OriginalAdjusted Domestic revenue$104.8bn$77.1bn Tax revenue$77.2bn$60.2bn Non-tax revenue$27.5bn$16.9bn External grants$0.1bn Total revenue$104.9bn$77.1bn Total revenue as % of GDP18.50%15.46% BUDGET DEFICIT Budget deficit-$5.5bn-$12.7bn Budget deficit as % of GDP1.00%2.50% 2009 Budget (in USD)

9 9 Rationale Supporting the 2009 Budget Outlook  Adjust macroeconomic assumptions:  Economic growth: 6.0%  4.0% - 4.5%  IDR/USD: 9,400  11,000  World oil price: US $ 80/barrel  US $ 45 - US$ 60 /barrel  Original capital and social spending through line ministries remain unchanged  Incorporate fiscal stimuli (1.4% of GDP) to stabilize the economy  Revenue projected to be 26% lower than original budget  Accelerate expenditure disbursement from the central and regional government  Automatic price adjustment with maximum cap applied to gasoline price  Budget deficit: 1%  2.5% of GDP  Increase in budget deficit to be financed by 2008 budget surplus of US$4.7billion (1% GDP) and additional debt of US$ 4billion (0.8% GDP)  Arrange standby financing from multilateral and bilateral countries in anticipation of any worsening of the financial crisis

10 10 Budget Up to May 7 th 2009, budget performance remain on fact with IDR 7,2 Trillion of Surplus and over financing IDR 61,3 Trillion

11 11 Fiscal Stimulus 2009 in Indonesia 1. Budget Deficit : 1% to 2,5% GDP due to : Changes in macro-economic assumption. Fiscal stimulus. 2. Budget deficit Financing : US$ 4.6 Billion from 2008 financing surplus Additional debt and drawn the stand by loan Additional program loan US$ 1 Billion 3. Fiscal stimulus US$ 6.7 Billion which included tax, customs and duty, and government spending stimulus

12 12 Indonesia's Stimulus Package is Comparable to Other Economies The fiscal stimulus package that Indonesia has put in place is in line with rest of the world Source: CEIC, Bloomberg ASEAN countries adjust budget deficit due to a lower revenue and fiscal stimulus program

13 Funding Plan Notes: a) Estimates based on new set of assumptions plus additional fiscal stimulus measures b) 2008 financing surplus c) Additional debt from standby facility 2009 Original Budget2009 Budget Outlook a) Revenue and Grant 1 $104.9bn$77.1bn Expenditures 2 $110.3bn$89.8bn Deficit 1-2 -$5.5bn-$12.7bn Financing $5.5bn$12.7bn Non Debt 3 $0.6bn$5.0bn b) Amortization 4 -$11.3bn- $10.6bn Loan-$6.6bn- $6.6bn Gov. Securities-$4.8bn- $4.1bn Gross debt Financing 5 $16.1bn$14.2bn Loan$5.5bn$5.1bn Program$2.8bn Project$2.7bn$2.3bn Gov. Securities$10.6bn$9.1bn Additional Debt$4.0bn c) Assumption 1 USD = IDR 9,691 for 2008, 1 USD = IDR 9,400 for 2009 Original Budget, 1 USD = 11,000 for 2009 Budget Outlook Source: Ministry of Finance Budget Deficit Financing (in USD)

14 14 Sensitivity of National Budget 2009 DEPARTEMEN KEUANGAN RI BADAN ANALISA FISKAL DEPARTEMEN KEUANGAN RI BADAN ANALISA FISKAL

15 15 Sensitivity of National Budget 2009 DEPARTEMEN KEUANGAN RI BADAN ANALISA FISKAL DEPARTEMEN KEUANGAN RI BADAN ANALISA FISKAL

16 16 Liquidity Support for Budget and BOP  Deficit increased from IDR 51,3 Trillion (1.0% GDP) to IDR 139,5 Trillion (2.5% GDP)  Finance by accumulated budget surplus amounted IDR 51,3 Trillion  Additional Debt required: IDR 44,5 Trillion  Under the volatile market, the additional “contingencies” financing coming from: -The World Bank -ADB -Bilateral (G2G): Japan and Australia  Maintain amount of government securities of IDR 53,9 Trillion nett of issuance, including domestic and international Sukuk Budget Deficit Financing (in USD) In response to forex risk due to volatile market conditions, steps taken:  Extend BSA swap with Japan, USD 6 bn to USD 12 bn  Bilateral swaps with China in Local Currency USD 15 bn  Trade Financing through IND Exim Bank with JBIC up to USD 500 mn Liquidity and Trade Financing Support (in USD) SUN (Rupiah) 86,37 86,9343,28 SUKUK (Rupiah) 5,56 Global SUKUK 7,15 (1 Global Bond16 ( (3 33,00 (4 Total Issuance 89 Additional Req. 10,6 Bond Issuance (1 Equivalent to USD 650 Million (2 Equivalent to USD 1,5 Billion (3 Equivalent to USD 1,5 Billion (4 Equivalent to USD 3 Billion 16

17 17 Mechanism of Fuel Subsidies The Down Stream Oil and Gas Regulating Agency Ministry of Finance Parliament National Budget Constitution Volume estimation proposal of spesific fuel types Determining the volume estimation of spesific fuel type FINANCIAL NOTE AND ESTIMATED NATIONAL BUDGET Fuel Subsidies Budget Estimating fuel subsidies using the ICP assumption, MOPS and foreign exchange rate Spesific Fuel Subsidies Estimate Change of ICP assumption, fuel volume, and foreign exchange rate Revised National Budget Contitution Ministry of Energy and Mineral Resource

18 18 FORMULA TO ESTIMATE THE FUEL SUBSIDIES  Fuel Retail Price is domestic fuel price per litre  Tax is the Value Added Tax and Motor Vehicle Fuel Tax  Fuel Standard Price is counted price based on MOPS plus marginal and distribution costs.  Fuel Standard Price = MOPS + α α is distribution and marginal costs Mid Oil Platt’s Singapore (MOPS) is transactional price in Singapore fuel stock exchange Fuel Subsidies : = Fuel Standard Price- (Fuel Retail Price - Tax) ] x fuel volume

19 19 FUEL SUBSIDIES ESTIMATION SCHEME ICP CRUDE Delta MOPS Gasoline Petroleum Diesel fuel Product Fuel Retail Price Consumer MOPS Household and Small Enterprises Alpha (distribution and marginal cost) Gasoline Petroleum Diesel Fuel Transportation,P ublic Service, Small and Fishery Enterprises Transportation and Public Service, Small and Fishery Enterprises Fuel Standard Price +

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