Indonesia books lower-than-expected 2024 fiscal deficit

By Stefanno Sulaiman and Gayatri Suroyo

JAKARTA (Reuters) -Indonesia's unaudited budget deficit for 2024 was smaller than the government's earlier estimate, official data showed on Monday, providing a buffer for fiscal needs in 2025 after authorities cancelled a planned tax hike.

Southeast Asia's largest economy closed 2024 with a budget gap of 507.8 trillion rupiah ($31.38 billion), or 2.29% of GDP, smaller than an earlier estimate of 2.7% of GDP, but wider than 2023's gap of 1.61% of GDP.

By law, the government must keep the annual fiscal deficit under 3% of GDP.

Given higher debt issuance last year, the government also ended up with 45.4 trillion rupiah in excess cash that it could use to plug 2025's projected deficit of 2.53% of GDP, officials at the finance ministry said.

"This will become a foundation for the health of our budget to support the new administration," Finance Minister Sri Mulyani Indrawati said at a press conference, referring to the government of new President Prabowo Subianto, who was inaugurated in October.

In 2024, revenues rose 2.1% from 2023 to 2,842.5 trillion rupiah. The government spent 3,350.3 trillion rupiah in total last year, up 7.3% from 2023.

Total expenditure planned for 2025 is 3,621.3 trillion rupiah.

A challenge for this year is to look for ways to increase revenues after a planned value-added tax rate increase across the board to become effective on Jan. 1 was cancelled, as Prabowo decided at the last moment to apply the hike only on luxury goods.

The finance ministry previously said a general VAT increase would have raised additional income of around 75 trillion rupiah.

A VAT hike for luxury goods means there would be 1.5 trillion to 3.5 trillion rupiah in additional revenue, said Suryo Utomo, the ministry's head of taxes.

Financial markets have been monitoring the government's fiscal policy after Prabowo said he wanted to be more daring with debt to fund his flagship programmes, which include providing free school lunches and significantly expanding farmland.

The "Free Nutritious Meals" programme, which has a budget of 71 trillion rupiah, was scheduled to begin on Monday.

Economic growth last year was estimated at around 5%, Sri Mulyani said, compared with 2023's growth of 5.05%. The government targets 5.2% growth for 2025.

($1 = 16,180.0000 rupiah)

(Reporting by Stefanno Sulaiman and Gayatri Suroyo; Editing by Martin Petty, Christian Schmollinger and Raju Gopalakrishnan)

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