INDONESIA’S SHORTFALL: $21 BLN

Indonesia's 2015 revenue target is "really unrealistic" and there will be a large budget shortfall that could force the government to cut spending, a World Bank economist said on Wednesday.

"Revenue shortfall is absolutely unavoidable," Ndiame Diop, the bank's lead economist for Indonesia, told a seminar titled "Indonesia Economic Quarterly: High Expectations".

A World Bank report released at the event said this year's revenue shortfall could be as much as 282 trillion rupiah ($21.4 billion).

A key impact of the shortfall, Diop said, is that "perhaps the government will have to revise its spending plan".

President Joko Widodo, who took office in October, won parliament's approval in mid-February for a 2015 budget that includes big increases in infrastructure spending and tax collection.

It calls for a 14 percent increase in total revenue and a 30 percent rise in tax collection, even though Indonesia is currently being hurt by falling oil and gas revenue and lower commodity prices.

Diop described the revenue target as "overly ambitious".

A huge drop in oil and gas revenue will wash away the gains the Indonesian government is getting from scrapping gasoline subsidies, he said.

The government will have to rely heavily on higher non-oil and gas revenue, including from value added tax (VAT) and corporate income tax, to finance infrastructure projects.

The World Bank said the central government's 2015 budget deficit, planned at 1.9 percent of gross domestic product (GDP), will likely expand to 2.5 percent.

Widodo budgeted 290.3 trillion rupiah for infrastructure spending, a 60 percent increase from the 2014 budget.

Robert Pakpahan, the director-general of financing and risk management at the Finance Ministry, said the government has come up with plans to mitigate the risk of a budget shortfall this year.

"If the deficit swells and we have to cut spending, it will be operational spending that we cut, not funds for infrastructure," Pakpahan said.

He said the government is confident it will be able to finance a bigger deficit through bond auctions and other loans.

($1 = 13,165 rupiah)

reuters.com