World Bank cuts Indonesia 2016 growth forecast to 5.1 percent, sees revenue miss

JAKARTA (Reuters) - The World Bank has trimmed its 2016 growth forecast for Indonesia, saying a miss on the government’s revenue target will constrain government spending.

Indonesian Finance Minister Bambang Brodjonegoro speaks during the Inaugural Meeting of the Board of Governors of the Asian Infrastructure Investment Bank (AIIB) in Beijing, China, January 16, 2016. REUTERS/Mark Schiefelbein/Pool

In a quarterly review of Indonesia’s economy released on Tuesday, the multilateral lender revised the growth outlook to 5.1 percent from 5.3 percent in December.

At about the same time, the International Monetary Fund issued its annual Indonesia policy review, in which it forecast economic growth of 4.9 percent this year, up from 4.7 percent in 2015.

The World Bank said its downward revision stemmed from weaker-than-expected global conditions and constraints the government faces on spending, which mean growth will depend more on private sector spending.

Indonesia will probably miss its 2016 revenue target by 275 trillion rupiah ($21.02 billion), the bank said. It projected revenue of 1,547 trillion rupiah, about 3 percent higher than last year, not taking into account a tax amnesty plan the government has announced.

The government’s revenue target is 1,822 trillion rupiah. A sizable shortfall can force cuts in state spending, as Indonesia has a law limiting its fiscal deficit to 3 percent of gross domestic product (GDP).

According to the bank, the government “has two policy options: expand the deficit within the fiscal rule of 3 percent of GDP and reduce non-priority spending.”

Assuming the government takes both options, the World Bank expects 2016 expenditure disbursement to be limited to about 91 percent at 1,906 trillion rupiah, and the fiscal deficit to reach 2.8 percent of GDP. The government’s original plan was for 2.2 percent.

President Joko Widodo initially wanted to boost revenue by relying on a tax amnesty program that his finance minister said would bring in about 100 trillion rupiah. But the plan has sparked controversy and the parliament has delayed debate on a bill backing the amnesty program until at least April.

The amnesty program offers a low tax rate for taxpayers who declare their untaxed wealth at home and abroad.

Finance Minister Bambang Brodjonegoro said last week that if parliament rejects the tax amnesty bill, Jakarta will step up efforts to audit tax reports of individuals.

Brodjonegoro has previously said the government will propose a revision to the state budget after the amnesty bill is passed.

Reporting by Hidayat Setiaji; Writing by Gayatri Suroyo; Editing by Richard Borsuk