INDONESIA MACROECONOMIC UPDATE

Jakarta, 20th of November 2019

1

MINISTRY OF FINANCEREPUBLIC OF INDONESIA

Global economy grows

at its lowest pace since

the 2008 GFC

• Revised projectionsGlobal economic growth projection keeps

having downward revision. In the past

one year, global economic growth

projection 2019 has declined by 0,7 ppt

from its initial projection.

• Economic slowdownThe slowdown occures both in advanced

and emerging economies, including

Indonesia’s major trading partners.

• Response to the slowdownThe slowdown is responded by monetary

easing and fiscal expansion.

Global economic

growth

3,6% 3,0%

3,2%1,1%

Global trade volume

growth

Proyeksi

2019

Proyeksi

2020

2018

Source: WEO October, IMF

Downward

pressure

Downward

pressure

3,4%

3,6%5,5%

3,8%

2,2%

3,4%

20172016

Global Risks

Trade War Economic

Recession

Declining

manufacturing

&

Investment

Geopolitics

Tension

2

3.353.02

3.613.13 3.13

0

1

2

3

4

5

6

7

8

Jan

Ap

r

Jul

Okt

Jan

Ap

r

Jul

Okt

Jan

Ap

r

Jul

Okt

Jan

Ap

r

Jul

Okt

Jan

Ap

r

Jul

2015 2016 2017 2018 2019

Inflation (%, yoy)

Oct

Sumber: CEIC and MoF

Economic growth and inflation could be

maintained.

Amid global economic slowdown,

-0.98

1.83

0.49

-1.05

0.48

0.082.24

1.38

2.69 2.69

-1

0

1

2

3

4

5

6

Q3 2018 Q3 2019

GDP Growth’s Contribution by Expenditure

GDP Item Growth Q3 2019 (%)

Private Consumption 5.06

Government Consumption 0.98

Investment (GFCF) 4.21

Exports 0.02

Imports -8.61

GDP 5.02

Net Export

Others

Investment

Net Export

Government Consumption

Household Consumption

Government Consumption

3

Gini Ratio Poverty Level (%) Unemployment Level (%)

Challenges

- Economic changes structure of employment

- Skill mismatch

- 4th Industrial Revolution (automation, artificial intelligence)

Challenges

- Access to food, health, and education for poor people

- Climate change food price

Challenges

- Disparity in access to capital

- Geographical condition

Gini ratio target 2019

0.38 – 0.39

Poverty Target 2019

8.5% - 9.5%

Unemployment Target 2019

4.8% - 5.2%

HDI : 71.98

4

Source: Central Bureau of Statistics, processed

9.11

5.28

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

0,3600,382

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

17,75

9,41

20

06

20

08

20

10

20

12

20

14

20

16

20

18

Healthy economic development improves Indonesian welfare

Mid-Term Government Priorities

MID-TERM

GOVERNMENT

PRIORITIES

Economic

Transformation

Bureaucratic

Efficiency

Regulatory

Streamlining and

Simplification

Infrastructure

Development

Widespread simplification of regulations, including the removal and streamlining of existing overlapping laws, to encourage economic growth and investment

President Jokowi will ask Parliament to issue two omnibus laws that target the creating of jobs and empowerment of SMEs

Reducing the bureaucratic process and easing echelonisation (bureaucratic hierarchy), creating greater flexibility

Ensure echelon levels are meritocratic and based on competence and expertise

Transforming the country’s economy legacy from a high dependence on agriculture / natural resources towards manufacturing and value-added services

Increasing the joint prosperity of the nation

Human capital development remains a main priority in response to the demographic dividend

Aimed at creating a generation of hardworking dynamic Indonesians who master knowledge and technology

Need for a large endowment fund to manage human capital

Optimizing work/labor allocation and skill matching within each industry

Developing infrastructure to continue supporting the activities of the people, develop the economy and enhance accessibility

MID-TERM

GOVERNMENT

PRIORITIES

Human Capital

Development

5

20154.9

20165.03

20175.07

20185.17 2019

5.08

20205.3

2015(2.59)

2016(2.49)

2017(2.51)

2018(1.82)

2019(1.84)

2020(1.76)

State budget is directed to be

Countercyclicalin order to respond the risk of

weakening economy

Budget deficitis still maintained at healthy and

sustainable level

==========================

Outlook

Economic

Growth(%)

Budget Deficit as

Percentage of

GDP(%)

6

Outlook

2020 BUDGETAccelerating Competitiveness through Innovation and Strengthening Quality of Human Resources

7

I REVENUE 1,943.7 2,030.8 4.5 2,221.5 9.4 2,233.2 10.0TAX REVENUE 1,518.8 1,643.1 8.2 1,861.8 13.3 1,865.7 13.5

NON-TAX REVENUE 409.3 386.3 (5.6) 359.3 (7.0) 367.0 (5.0)

GRANT REVENUE 15.6 1.3 (91.7) 0.5 (61.5) 0.5 (61.5)

II EXPENDITURE 2,213.1 2,341.6 5.8 2,528.8 8.0 2,540.4 8.5CENTRAL GOVERNMENT EXPENDITURE 1,455.3 1,527.2 4.9 1,670.0 9.4 1,683.5 10.2

TRANSFER TO REGION AND VILLAGE FUND 757.8 814.4 7.5 858.8 5.5 856.9 5.2

III PRIMARY BALANCE (11.5) (34.7) 201.7 (12.0) (65.4) (12.0) (65.4)

IV DEFICIT (269.4) (310.8) 15.4 (307.2) (1.2) (307.2) (1.2)% Surplus / Deficit to GDP (1.82) (1.93) 6.04 (1.76) (8.81) (1.76) (8.81)

V FINANCING 305.7 310.8 1.7 307.2 (1.2) 307.2 (1.2)

2020 BUDGET (Trillion Rupiah)

2018

Realization

2019

Outlook

2020

Proposed

Budget

Growth

(%)

Growth

(%)

2020

Budget

Growth

(%)

I REVENUE 1,943.7 2,030.8 4.5 2,221.5 9.4 2,233.2 10.0TAX REVENUE 1,518.8 1,643.1 8.2 1,861.8 13.3 1,865.7 13.5

NON-TAX REVENUE 409.3 386.3 (5.6) 359.3 (7.0) 367.0 (5.0)

GRANT REVENUE 15.6 1.3 (91.7) 0.5 (61.5) 0.5 (61.5)

II EXPENDITURE 2,213.1 2,341.6 5.8 2,528.8 8.0 2,540.4 8.5CENTRAL GOVERNMENT EXPENDITURE 1,455.3 1,527.2 4.9 1,670.0 9.4 1,683.5 10.2

TRANSFER TO REGION AND VILLAGE FUND 757.8 814.4 7.5 858.8 5.5 856.9 5.2

III PRIMARY BALANCE (11.5) (34.7) 201.7 (12.0) (65.4) (12.0) (65.4)

IV DEFICIT (269.4) (310.8) 15.4 (307.2) (1.2) (307.2) (1.2)% Surplus / Deficit to GDP (1.82) (1.93) 6.04 (1.76) (8.81) (1.76) (8.81)

V FINANCING 305.7 310.8 1.7 307.2 (1.2) 307.2 (1.2)

2020 BUDGET (Trillion Rupiah)

2018

Realization

2019

Outlook

2020

Proposed

Budget

Growth

(%)

Growth

(%)

2020

Budget

Growth

(%)

Tax revenue for supporting the competitiveness with the realistic and optimal target

Budget spending will be prioritized for productive spending

Budget financing will be decreased and will be utilized for competitiveness improvements

11.6 10.8 10.7

11.4 11.1

11.6

2015 2016 2017 2018 2019 Outlook 2020 BudgetTAX RATIO

In 2020, budget deficit will be maintained at level 1.76% to GDP Directed to be healthier and adaptive to face the economic risks

8

(298.5)(308.3)

(341.0)

(269.4)

(310.8) (307.2)

(142.5)(125.6) (124.4)

(11.5)(34.7)

(12.0)

(2.59) (2.49)

(2.51)

(1.82) (1.93)(1.76)

(3.00)

(2.50)

(2.00)

(1.50)

(1.00)

(0.50)

0.00

(400.0)

(350.0)

(300.0)

(250.0)

(200.0)

(150.0)

(100.0)

(50.0)

0.0

2015 2016 2017 2018 2019Outlook

2020 Budget

Budget Deficit (Trillion IDR) Primary Balance

1,240.4 1,285.0 1,343.5 1,518.8

1,643.1 1,861.8 1,865.7

8.2

3.6 4.6

13.08.2

12.6

5.8

2.9

13.410.5

13.5

14.8

-

500

1,000

1,500

2,000

2015 2016 2017 2018 2019Outlook

2020RAPBN

2020APBN

PPh Migas Pajak nonmigasKepabeanan dan Cukai Pertumbuhan Penerimaan Perpajakan (%)Pertumbuhan Pajak nonmigas (%)

Improvement to Support Taxation

• Increasing the tax compliance• Service quality improvement, counseling, and

supervision through the strengthen IT system and tax and administration

• Equalizing the level playing field • Improving the business process especially for VAT

refund• Implementing the AEoI• Extensification of excise goods• Adjusting the excise duty rates on tobacco

Tax Revenue (Trillion Rp)

• Management and Utilization of Optimal, Effective and Efficient Natural Resources

• Service Improvement and Tariff Adjustment• Improvement of BUMN Efficiency and BLU Performance• Improving Governance

9

Oil & Gas

Custom & Excises

Non Oil & Gas Tax Revenue Growth (%)

Non Oil & Gas Tax Tax Revenue Growth (%)

Budget Plan Budget

(35.9)2.5 18.8 31.5

(5.6)

2015 2016 2017 2018 Outlook 2019 RAPBN 2020 APBN 2020

PNBP Migas (Triliun Rp) PNBP Nonmigas (Triliun Rp) Pertumbuhan (%)

(7,0)(5,0)

255,6 262,0

311,2

409,3386,3

359,3 370,0Non Tax Revenue (Trillion Rp)

Oil & Gas (Trillion Rp) Non Oil & Gas(Trillion Rp) Growth (%)

2020Budget Plan

2020Budget

The role of the non-oil and gas PNBP sector continues to be strengthened accompanied by increased services to the community

10

Fiscal incentives to promote investmentGovernment keeps committed to promote investment through among others tax and custom facilities

Several

Incentives in the

pipeline:

• Investment Allowance for labor intensive projects

• Deduction of Net Income based on amount invested capital

Income Tax Facility • Tax Holiday• Tax Allowance• Exemption from Import

Income Tax• Super Deduction for R&D

and vocational training

Custom Facility• Free import duty on capital

goods

• KITE

• Bonded Storage Area

• Import duty borne by the

government

VAT FacilityVAT exemption for:

• Capital goods

• Health and education service

• Social service

• Export services

Special Facility• Facility in special economic

zone (KEK)

• Facility in industrial zone

• Free Trade Zone

• Omnibus Law

Lowering the corporate income tax in a bid to attract more investment and boost the country’s economic growth.

Ministry of FinanceFiscal Policy Agency

Education BudgetRp 508.1 T

Enhancement of productivity and competitiveness of human resource

Education Expansion of

education access, skill enhancement, entrepreneurship, ICT mastery, and support of research activities

Health BudgetRp132.2 T

Government expenditure in 2020A better spending to supporting development to be efficient and effective

Health Acceleration of

stunting reduction, strengthening of promotiveand preventive activities, continuation of national health insurance program

Social Protection BudgetRp372.5 T

Acceleration of poverty alleviation

Improvement of data accuracy and distribution mechanism

Synergy/synchronization between programs

Well-targeted and effective subsidy

Infrastructure developmentRp 423.3 T

Improving investment and export competitiveness

Supporting industrialization transformation (connectivity, foods, energy, and water) and anticipation of city’s social problems (clean water, sanitation, waste management, & mass transportation)

Encouraging line ministries to use creative financing scheme(PPP, Viability Gap Fund, Availability Payment)

14

Quality of Human Capital Acceleration of

Infrastructure Development

Efficient, serving,

and free of

corruption bureaucracy

Encourage bureaucracy effectiveness > productivity, integrity & public services

Maintaining the level of welfare of apparatus and retirees (anticipating pension reform)

Bureaucracy based on ICT progress

Improvement Budget Rp 261.3 T

Anticipating

Uncertainties

Economic, security, and political stability

Disaster risk mitigation,environmental preservation, and development of renewable energy

Strengthening fiscal buffer for sustainability and flexibility

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Thank You

Ministry of FinanceThe Republic of Indonesia