ECONOMIC REVIEW

Macro Brief

Office of Chief Economist, PT Bank Mandiri

May, 23, 2023 | Macro Brief (May-23 Fiscal): State Budget surplus widens amid rising global risks

The State Budget in Apr-23 recorded a larger surplus at IDR 234.7 tn or 1.12% to GDP, as government revenue grew faster than spending.

• The surplus was notably higher than the previous month (0.61% in Mar-23) and the year before (0.52% in Apr-22).
• State revenue grew by 17.3% yoy, while state spending modestly grew by 2.0% yoy.

Both tax and non-tax revenue still grew positively, though at a notably slower pace compared to last year. The slowdown mostly impacted by the declining global commodity prices.

• As of Apr-23, tax revenue grew by 21.3% yoy (vs. 51.4% yoy in Apr-22).
• All tax components recorded positive growth, though it was mostly moderately lower than last year.
• Value Added Tax (VAT) grew at a notably milder pace by 24.9% yoy (vs 39.7% yoy in Apr-22).
• Domestic VAT experienced a contraction of 10.9% in Apr-23. Yet, it may be too early to indicate a slowdown in economic activities as this may be just an impact of shorter working days in April.

State spending grew at a slightly slower pace than last year.

• By Apr-23, state spending has reached IDR765.8 tn, growing by 2.0% yoy (vs. 3.8% yoy in Apr-22).
• Spending for education recorded positive growth of 17.6% yoy which was driven by disbursement of educational endowment fund and acceleration of school operational assistance.
• Security spending contracted by 5.1% yoy, mainly due to a high base effect as there was an acceleration in staple food spending (cooking-oil assistance) last year.

OUR VIEW:

• Global economic slowdown and declining commodity prices has started to impact the state revenue performance. Yet, the state revenue is still supported by domestic economic recovery and the impact of the new tax law, which created a wider tax base.
• State spending was generally still in line with its historical pattern, hence we expect faster realization in the coming months.
• The state budget has recorded a surplus for four-consecutive-months in 2023. This means the government’s budget is in healthy condition which increase the ability of the budget to be shock absorber against the rising global challenges. This is also reflected in the excess cash balance (SILPA) in April that reached IDR458.6tn.
• As of Apr-23, the government’s bond issuance has reached IDR240.0tn or 33.7% of target, notably higher than last year (at 14.8% of target in April-22), as the government anticipates the rising trend of interest rate. Going forward, the pace of bonds issuance may decline as government’s budget position is improving. Therefore, we expect a relatively contained bond supply risk this year.
• All in all, with the recent development and using the historical pattern, fiscal deficit may be potentially lower than the current initial target this year of 2.84% of GDP.

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