Macroeconomic Assumptions in Indonesia's State Budget Revised Down

Of the eight basic macroeconomic assumptions, only the (proposed) outlook for the crude oil price (Indonesian crude price/ ICP) improved. In the 2014 State Budget, ICP was set at USD $105 per barrel. The government now proposes to adjust this to the range of USD$ 103-105 per barrel.

Overall economic growth in Indonesia, which was initially set at six percent in 2014, has been lowered to between 5.8 and 6.0 percent. Indonesia's Finance Minister Chatib Basri said the decline in the outlook for economic growth was not caused by a fragile global economy as in 2014 the world economy is in fact expected to improve from its condition in 2013 - despite still facing risks of weakening, especially in Europe and China. Factors that contribute to the lower forecast are volatility of global liquidity and commodity price fluctuations. These conditions can cause the risk of capital outflows and may curb export growth.

The largest declines in outlook were those of the Indonesian rupiah exchange rate and oil lifting. The government assumes that the rupiah exchange rate in 2014 will fall in the range of IDR 11,500 to IDR 12,000 per US dollar, much lower than IDR 10,500 which was originally estimated. The revised outlook for 2014 is also much lower than last year's result of IDR 10,451 per US dollar.

Chatib Basri admits that there has been a significant depreciation of the rupiah since 2013. However, up to mid-February 2014, the currency has strengthened following the country's improved balance of payments in the fourth quarter of 2013. The depreciated exchange rate is believed to have a major impact on government spending this year, especially regarding fuel subsidies as oil imports have become more expensive (between 2 January and 17 February 2014, the rupiah appreciated 3.28 percent from IDR 12,160 to 11,785 per US Dollar).

The other macroeconomic assumption that was lowered significantly was oil lifting. In the original 2014 State Budget it was set at 870,000 barrels per day (bpd), but is proposed to be changed to between 800,000 and 830,000 bpd. Meanwhile, gas lifting will be lowered to between 1.2 and 1.225 million barrels of oil equivalent per day (boepd) from 1.24 (boepd). This implies that Indonesia's revenues from oil & gas exports will be curtailed further, while subsidy spending may balloon as fuels are subsidized in Indonesia.

The outlook for inflation is proposed to be revised to the range of 5.4 to 5.7 percent as higher inflation is expected because of imported inflation due to the sharply depreciated rupiah exchange rate last year.

	State Budget     Draft 2014	Revised Outlook            2014	Revised State   Budget 2013	Realization        2013
GDP Growth annual percent change	6.0	5.8 - 6.0	6.3	5.8
Inflation annual percent change	5.5	5.4 - 5.7	7.2	8.4
Exchange Rate IDR/USD	10,500	11,500-12,000	9,600	10,451
Treasury Bills Interest Rate 3-month, percent	5.5	5.5 - 6.0	5.0	4.5
Indonesian Crude Oil USD $ per barrel	105	103 - 105	108	105.7
Oil Lifting thousand barrels per day	870	800 - 830	840	825
Natural Gas Lifting barrel of oil equivalent/day	1,240	1,200 - 12,225	1,240	1,215

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