JAKARTA: Indonesia needs more aggressive fiscal policy to spur demand and investment in Southeast Asia’s largest economy, according to chatib barsi, finance minister.
Efforts to kick start economic growth through eight interest rate reductions since the beginning of 2016 have failed to yield desired results and President Joko Widodo may now need to pursue a more expansionist fiscal policy, Basri said. But poor revenue collections may limit the scope of such efforts, he said.
Widodo wants higher economic growth as he pursues his ambitious infrastructure agenda, including ramping up spending next year to record levels, but growth has been stuck around 5 percent since he took office three years ago. The government is also facing a persistent fiscal shortfall with revenue as a percentage of gross domestic product being significantly lower than peer economies and a tax compliance rate among the region’s worst.
“The biggest problem for Indonesia is on the demand side,” Basri said in an interview on tuesday ahead of the Bloomberg year ahead Asia conference in Jakarta. “We need to have a more aggressive fiscal policy,but unfortunately because the tax revenue is still a problem, we don’t have the room to do so.”
Indonesia lags its peers in terms of government revenue, which is estimated by the International monetary fund at 14 percent of GDP. Moody investors Service has cited boosting revenue as a key factor in Indonesia winning another ratings upgrade.
