2025-06-16-花旗集团-印度尼西亚经济_2025年7月预算修订_预计大幅削减发行量_10页_198kb

Indonesia Economics Summary

Core Content

This document provides an analysis of the July 2025 budget revision in Indonesia, focusing on fiscal deficit and debt issuance targets. It outlines the expectations for the revised budget, the reasons behind the potential reduction in debt issuance, and the implications of such changes on the economy and financial markets.

Main Points

• Fiscal Deficit Target Adjustment:
  The base-case expectation is for a slightly higher fiscal deficit target for 2025, projected to be 2.7% of GDP, compared to the original budget. This is due to a downward revision in revenue primarily driven by the decline in SOE dividend receipts following the consolidation of SOE ownership to Danantara. The VAT rate hike cancellation earlier in the year, which amounted to $0.3% of GDP, may not be fully reflected in the revised budget.

• Debt Issuance Target Cut:
  A Rp150tn (approximately 0.3% of GDP) cut in the debt issuance target is expected. This cut is likely to be largely on the loan draw-down side, with a lesser impact on bond issuance. The reduction is supported by the possibility of utilizing the government's accumulated cash balance, which is expected to reach equivalent to 2.7% of GDP by May 2025, up from 2.2% of GDP at the end of 2024.

• Impact on Bank Liquidity and Growth:
  A too small issuance cut may result in an accumulation of cash balances at the end of 2025, potentially crowding out growth by constraining bank liquidity. This could hinder the transmission of monetary policy, thereby limiting private investment.

• Scenario Analysis:

  • Bull Scenario: A larger debt issuance cut (greater than Rp150tn) would result in better liquidity at the end of 2025.
  • Bear Scenario: If the below-the-line disbursements remain high, the debt issuance cut may be smaller than expected, even if the fiscal deficit target is similar or lower than the base-case.

• Financing and Realization:
  The forecast realization of the fiscal deficit is expected to be around 95% of the revised target, which may lead to an under-realization of up to 0.3pps. The debt financing is expected to drop by Rp150tn, and the FCY issuance ratio is anticipated to fall below 15%.

• Cash Balance Utilization:
  The usage of the cash balance is expected to be 71.3% of the original target, with actual realization being 0%. This highlights the uncertainty around how effectively the government will use its accumulated cash.

Key Information

• The government is expected to reduce capital injections to SOEs, which may be minimized or eliminated due to the transfer of ownership to Danantara.
• Non-tax revenue and grants are projected to decrease by Rp80tn, and SOE dividends are expected to drop from Rp90tn to Rp10tn.
• Total below-the-line disbursements are expected to decrease by Rp160tn, with contingency reserves and education endowment fund being significant contributors to this reduction.
• The fiscal balance is expected to worsen, but the debt issuance cut will help in balancing the budget.
• FX demand-supply balance has improved, which supports the reduction in FCY debt issuance.

Conclusion

The July 2025 budget revision in Indonesia is anticipated to include a sizable cut in debt issuance (around Rp150tn) and a slightly higher fiscal deficit (around 2.7% of GDP). The effectiveness of the cash balance utilization and the realization of spending targets will be critical in determining the actual fiscal outcome. A too small cut may constrain bank liquidity and hinder growth, while a larger cut could improve liquidity and support economic stability. The government's ability to manage its cash balance and adjust its spending will be key to the success of the fiscal policy in 2025.