Government's 2014 Macroeconomic Assumptions Ambitious but Unrealistic
The macroeconomic assumptions that have been formulated in the 2014 State Budget Draft by the government of Indonesia are not considered too realistic by several analysts. Although it is understood that one should set a high standard in order to maximize efforts, analysts feel that - given the current problematic economic context in Asian emerging economies as well as global economic turmoil - the government is far too optimistic, particularly because the government will have to devote part of its attention to the elections in mid-2014.
| State Budget Draft 2014 |
|
| GDP Growth annual percent change |
6.4 |
| Inflation annual percent change |
4.5 |
| Exchange Rate IDR/USD |
9,750 |
| Treasury Bills Interest Rate 3-month, percent |
5.5 |
| Indonesian Crude Oil USD $ per barrel |
106 |
| Oil Lifting thousand barrels per day |
870 |
| Natural Gas Lifting barrel of oil equivalent/day |
1,240 |
In order to foster economic growth of 6.4 percent, the government intends to place emphasis on Indonesia's household consumption. With about 55 percent, domestic consumption is the biggest contributor to the country's economic growth. However, as inflation has risen steeply after prices of subsidized fuels were raised in June 2013 and the central bank reacted through monetary policy that involved the raising of the benchmark interest rate from 5.75 percent to 6.50 percent, people's purchasing power has slightly weakened. In 2014, inflation is expected to moderate to 5.5 percent. Main contributors of inflation next year are believed to be government spending related to the presidential elections, as well as food, electricity and energy prices.
Regarding GDP growth in 2014, analysts believe a more realistic number is 6.0 to 6.2 percent as the global economy is not on track yet, thus impacting on Indonesia's export of commodities as well as on the country's trade balance.
Oil production targets have also not been met for a number of years. This year, the government's oil lifting target had to be revised downwards to 840,000 bpd because of various persistent problems such as red tape, safety concerns, and non-optimal coordination between the central and regional governments. As these issues continue to plague the country's oil and gas sector, it is expected that next year's target of 870,000 bpd is too high.
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