Reform on the move, stability intact

Transcription

1 INDONESIA MACROECONOMIC OUTLOOK & FISCAL POLICY DEVELOPMENT Reform on the move, stability intact SRI MULYANI INDRAWATI Minister of Finance Republic Indonesia Investor Presentation June 2018

2 EXECUTIVE SUMMARY Indonesia in Snapshot STRONG GDP GROWTH Supported by robust domestic activity and increasing role of investment INFRASTRUCTURE DEVELOPMENT ACCELERATION Strategic national projectssupported by budget and nonbudget financing (private sector) POVERTY & INEQUALITY ALLEVIATION Well-targeted social assistance and subsidypolicy One of the best GDP growth performer. with more potential to come Continuous reform. Fiscal, monetary and Real sector PRUDENT DEBT MANAGEMENT Maintain productive use of public debt REFORM ON THE MOVE 1. Taxation 2. Investment Regulation 3. Bureaucratic Credible Policy Framework.followed by International Recognitions Preserved fiscal prudence.improving creditworthiness 2

3 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 GLOBAL NEW NORMAL IS COMING Stabilization policy may influence in reaching Indonesia desired growth target US Policy Rates & 10Y Yield Potential Risk For Indonesia in 2019 People preference to saving, rather than consumption, not followed by productive (intermediate) financial market Monetary policy normalization and US recent taxation policy could influence capital flow to emerging markets 1 0 Wait and See profile of investor due to General Election process Inward looking policies in Indonesia s key trade partner with potential trade war between US and China. Fed Fund Rate upper bound 10Y US Gov't Bonds Strategic Policy Prepared The Government will continue to monitor global condition because it can translates to domestic economy. Policy coordination amongst authorities will be continued (Government, Central Bank, FSA, Deposit insurance Corporation). Coordinated policy to create Stability in Exchange rate, Manageable inflation rate, Healthy fiscal deficit, and Supportive current account profile. Fiscal Policies to support investment, competitiveness and export performance. This include : Fiscal incentives for investment Expansionary budget policy, supporting productive sectors and assuring infrastructure development. Private involvement in infrastructure development Well-targeted and well-timed social spending Central and Regional Policy coordination Real Sector Policies Law and Regulation certainty Improving business climate Maintaining prudent inflation management Strengthening export performance, include those from non-commodity (high value added) related activities and taping prospective new markets 3

4 INDONESIA GDP GROWTH AT 5.06% IN Q Strong investment and stable consumption support growth GDP GROWTH (%, YOY) Quarterly PDB (%,yoy) Yearly Tahunan (%) Consumption and investment remain as the main engines of growth Investment contribution increases underpinning more productive economic activity Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q International trade performance is robust as export grew by 6.17% and import 12.75% GDP breakdown by expenditure (%, YoY) Q1 Q2 Q3 Q4 Y Q1 Q2 Q3 Q4 Y Q1 Household Consumption Government Consumption (2.95) (4.03) (0.14) 2.69 (1.92) Gross Fixed Capital Formation Export (3.10) (1.50) (5.75) 4.15 (1.57) Import (5.04) (3.47) (4.13) 2.72 (2.45) GDP

5 DOMESTIC DEMAND IS HEALTHY AND GROWING Strong domestic economic activity indicator 130 Consumer Confidence Index 13 Consumption Credit Growth (%, yoy) 30 Investment Indicators Growth (%, yoy) Other Equipment Buildings J F M A M J J A S O N D J F M A M J J A S O N D J F M A J M M J S N J M M J S N J M M J S N J Machines & Equipments Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q

6 INFLATION HAS BEEN MORE BENIGN Create substantial foundation for robust consumption Inflation Rate (%) Inflation Rate & Components (%) 11.1% 12.0% Inflation (CPI) Core Inflation 10.0% 8.4% 8.4% 8.7% 7.0% 8.0% 6.0% 5.9% 4.33% 2.8% 3.8% 4.3% 3.4% 3.0% 3.6% 4.0% 2.0% 3.1% 3.0% 3.6% 3.0% 3.61% 3.23% 2.75% 1.3% 0.0% -2.0% 0.2% 0.71% J F M A M J J A S O N D J F M A M J J A S O N D J F M A M

7 DIRECT INVESTMENT GREW BY 11.8 PERCENT IN Q Underpinned by improving investment climate Direct Investment Realization Nominal (Rp Tn) Q Q Q Growth (% yoy) Nominal (Rp Tn) Growth (% yoy) Nominal (Rp Tn) Growth (% yoy) Domestic Foreign Total Direct Investment Share by Sectors Housing, Estate & Building 15% Metal, Machinery, & Electronic Industry 12% FDI share by country origins Q FDI share by country origins Others 45% Singapore 32.6% Singapore 23.8% Japan 16.7% Japan US 5.5% 12.2% S Korea China Hong Kong Other 11.6% 8.3% 6.3% 24.5% S Korea Netherland Malaysia China Hong Kong BVI Other 5.4% 4.7% 4.6% 3.9% 3.5% 3.4% 32.9% Transportation, Warehouse, & Telecommunication 8% Sumber: NSWi BKPM, diolah Crops & Plantation 10% Electricity, Gas, & Water Supply 10% 7

8 M J S N 2017-J M M J S N 2018-J M M J J A S O N D 2017-J F M A M J J A S O N D 2018-J F M A M J J A S O N D 2017-J F M A M J J A S O N D 2018-J F M A IMPORT GROWTH UPHOLDS INCREASING DOMESTIC ECONOMIC ACTIVITIES Until April 2018, trade balance is recording a deficit of USD1.31 billion Surplus FY 2016: USD9.5 billion Trade Balance (USD billion) Surplus FY 2017: USD11.8 billion Deficit Jan-Apr 2018: USD1.31 billion 60% 40% Cummulative growth of export commodity 33.4% % 0% -20% 5.3% 4.0% -5.1% % -60% Agriculture Manufacturing Mining O&G -2.0 Non O&G O&G Total Trade balance is recording deficit cummulatively in April 2018, due to high import growth that supports growing domestic production Import grew by 23.65% (ytd) supported by higher demand for festive seasons of Ramadhan and Idul Fitri; capital good increase to support infrastructure development and military equipment; and raw material increase that highlights improving domestic productivity and economic activity Export grew by 8.77% (ytd), underpinned by mining commodity growth of 33.4% and manufacturing of 5.3% 50% 40% 30% 20% 10% 0% -10% -20% -30% Sumber:BPS, diolah Cummulative growth of import goods Consumption goods Raw materials Capital goods 31.0% 26.1% 21.9% Contribution to Total Import Capital goods 16.3% Consumption goods 9.1% Raw materials 74.6% 8

9 CAPITAL GOODS STILL DOMINATES IMPORTS ACTIVITY Down streaming effort provides some structural change in exports Indonesia s Goods Imports Indonesia s Exports & Down streaming Efforts 2, , , , Top Indonesian Imports (USD Mn) Machinery / Mechanical plane Electrical Appliance Indonesia's imports, although dominated by non-oil and gas commodities showed an upward trend since early January % of Machinery / mechanical plane (HS84) and 25% of Electrical Appliance (HS85) imports are Capital Goods, and grows aligned with new infrastructure and industrial projects , , , CPO Export (USD Bn) Cocoa Export (USD Mn) The decline of CPO price contributed to export moderation About 80 percent of Indonesian cocoa beans are exported. In order to increase the added value and competitiveness, the Government regulate the export on cocoa. Since the introduction of the FMD, there has been an increase in processed exports. - Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 9

10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr EXTERNAL SECTOR STABILITY REMAINS PRESERVED Lower surplus of capital & fin acc led to a deficit in overall balance, but CAD narrowed and ample FX reserves 15 Balance of Payment (USD billion) 8 Current Account (USD billion) (0.3) (2.9) (4.6) (3.9) Current Account Capital & Fin Acc Overall Balance Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q : CAD Bn (-2.03% GDP) 2016: CAD Bn (-1.82% GDP) : CAD Bn (-1.73% GDP) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Q-1: (-2.15% GDP) Income Goods Services Curr Transfers Current Account 140 FX Reserves (USD billion) 15 Capital & Financial Account (USD billion) Adequate for 7.7 months of import payment and external public debt service Direct Portfolio Other Capital Capital & Fin Acc Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q

11 ALL REGIONS RECORDED POSITIVE GROWTH IN Q As the industrial center, Java still holds the biggest economic activity 2017: 4.14 SUMATERA: 21.5% of GDP KALIMANTAN: 8.2% of GDP 2018: 4.37% 2017: : 5.78% JAVA: 58.7% of GDP SULAWESI: 6.0% of GDP 2017: 2018: % 2017: 2018: % 2017: : 3.74% 2017: 4.40 PAPUA: 2.5% of GDP BALI & NUSRA: 3.0% of GDP 2018: 18.42% Java economic activity accounting for 58.67% of GDP All provinces but Nusa Tenggara Barat posted positive economic growth Maluku and Papua recorded high growth of 18.42%, underpinned by the increase of commodity price and mining activity National GDP growth 5.06% 11

12 SOVEREIGN RATING CREDIT UPGRADE FROM MAJOR AGENCIES Accolades of strong macroeconomic and fiscal policy framework and an improving creditworthiness 31 May 2018 BBB - BBB - Recovery in commodity prices and improving infrastructure to help deliver stronger economic growth in Indonesia in the next three to four years. 20 Des 2017 BBB- BBB The focus on macro stability is also evident in credible budget assumptions in the previous few years. 12 Feb 2018 BBB - BBB infrastructure development has been gaining momentum under strong initiative of President Joko Widodo for determination of National Strategic Projects (PSN) 7 Mar 2018 BBB - BBB Indonesia's economy continues its strong performance, with inflation remaining low and stable. Fiscal deficits have been reined in, and government debt is low 13 Apr 2018 Baa3 Baa2 The upgrade to Baa2 is increasingly underpinned by a credible and effective policy framework conducive to macroeconomic stability 12

13 INDONESIA 2018 GROWTH OUTLOOK Economy is projected to further accelerate as in the midst of robust domestic demand and improving international trade OPPORTUNITIES: GDP GROWTH PROJECTION (%, YOY) Stable consumption supported by benign inflation Rising investment driven by infrastructure development and improving business climate Increasing export as external demand recovering and commodity prices increasing Additional contribution from various special occasions such as Asian Games, regional election, general election preparation, and IMF-WB annual meeting APBN CHALLENGES: 2018 Growth projection from various institutions IMF (Apr 18) 5.3% OECD (Mar 18) 5.3% World Bank (Mar 18) 5.3% Consensus Forecast (Mar 18) 5.3% ADB (Des 17) 5.3% Consumption growth needs to be boosted more Competitiveness needs to be enhanced particularly to fulfill growing domestic demand Credit growth needs to be accelerated more External uncertainties: US monetary normalization, trade wars and protectionism, and geopolitical tension 13

14 STABLE MACROECONOMIC TO SUPPORT PRUDENT AND PRODUCTIVE BUDGET Stable amidst external vulnerabilities Indicators Revised Budget (APBN-P) Realized 31 May APBN Realized 31 May Budget (APBN) Realized 31 May Submitted to Parliament Economic growth (%, yoy) * * * Inflation (%, yoy) Month Treasury Bill (SPN) (%) Exchange Rate (Average, IDR/USD) 13,500 13,435 13,400 13,336 13,400 13,714 13,700 14,000 ICP (USD/barrel) Oil Production (thousands of barrel/day) ** Gas Production (millions of barrels/day) ** *) Q1 figures **) as of April 14

15 PERFORMANCE OF STATE BUDGET Fiscal sustainability is well preserved as fiscal deficit narrowed and primary balance recorded a substantial surplus R-Budget May Realization % real to Budget Budget May Realization % real to budget % of growth (yoy) A. REVENUE & GRANT 1, , I. Domestic Revenue 1, , Tax Revenue 1, , Non Tax Revenue II. Grants B. EXPENDITURE 2, , I. Central Government Expenditure 1, , Ministerial Spending Non Ministerial Spending II. Transfer to Region and Village Fund (4.0) 1. Transfer to Region (1.9) 2. Village Fund (26.7) C. PRIMARY BALANCE (178.0) (29.9) 16.8 (87.3) 18.1 (20.7) (160.5) D. SURPLUS/(DEFICIT) (397.2) (128.7) 32.4 (325.9) (94.4) 29.0 (26.6) % of GDP (2.92) (0.94) (2.19) (0.64) E. Financing (13.1) % of GDP I. Debt (12.8) II. Investment (59.7) (65.7) III. SLA (3.7) 1.6 (43.6) (6.7) 0.8 (11.9) (50.1) IV. Guarantee (1.0) (1.1) V. Other (35.6) SURPLUS/(DEFICIT) FINANCING The robust tax growth and positive performance in export and import duty good in the first quarter of 2018 is a positive support. Central Government Expenditure grows robustly Deficit realization is RP94.4 T or 0.64% of GDP, much lower compared to May 2017 Primary balance surplus is significantly higher than last year, highlighting improving fiscal performance and sustainability that well preserved 15

16 REVENUE FROM TAXATION KEEPS INCREASING Taxation collection grew by 14.6% cummulatively until May 2018 Tax Revenue as of May 42.8 T; 23,3% of APBNP T; 26.5% of APBNP Total: Rp406.8 T PPh Migas Pajak Non-Migas Bea Cukai 2016 Income Tax O&G Income Tax Non O&G Custom & Excise 14.2 T; 39.1% of APBNP Growth 15.6 % (yoy), with Tax Amnesty (TA) 12.7 % (yoy) without TA 45.8 T; 34.2% of APBNP Total: Rp470.3 T T; 59.0% of APBNP 399.8; 24.2% of APBNP 14.6 % (yoy) with TA 17.6 % (yoy) without TA 54.2 T; 27.9% of APBN Total: Rp538.8 T T; 66.6% of APBN T; 35.0% of APBNP Non O&G tax grew by 18.4% without TA, and 14.8% with TA Supporting factors: increase tax return submission in April and maintained purchasing power 16

17 TAX REVENUE COLLECTION (NON TAX AMNESTY) CONTINUES ON POSITIVE TREND Tax from non oil & gas grew by 14.8%, mainly boosted by Income Tax and VAT Income Tax Non O&G (Rp Tn), May TAX REVENUE CUMULATIVE GROWTH (NON TA) JAN-APR % Growth 14.2 % 20.2% (without TA) 13.32% 2017 Growth 13.6 % 7.9% (without TA) VAT (Rp Tn), May % 16.0% -3.46% % May 15 May 16 May 17 May

18 CUSTOM AND EXCISE POSTED THE HIGHEST GROWTH IN THE LAST 3 YEARS Custom & Excise Revenue Growth (May ytd) 18.29% Excise Revenue Growth (May ytd) 16.89% 6.97% 7.83% -8.78% % % May 15 May 16 May 17 May % May 15 May 16 May 17 May 18 Import Duty Revenue Growth (May ytd) 6.80% 14.11% Export Duty Revenue Growth (May ytd) 66.03% 84.60% 1.14% -4.89% % % May 15 May 16 May 17 May 18 May 15 May 16 May 17 May 18 Sumber EIS, CEISA, SPAN 1 Mei 2018 *Data sementara (diakses 1 Mei 2018) 18

19 % to GDP COMMITMENT TO CONTINUE STRENGTHENING PRODUCTIVE SPENDING Resources are used to promote inclusive and sustainable growth Line ministries spending will be directed to improve planning process, operational spending efficiency, and an early procurement process Allocation of energy subsidy to total expenditure continues to decline, in line with the government's commitment to increase spending on infrastructure Subsidy allocation to GDP Central Government Spending 2015 IDR 1,183.3 T Source: 2016 IDR 1,154.0 T 2017 IDR 1,259.6 T 2018 IDR 1,454.5 T Line Ministries IDR T Non Line Ministries IDR T Energy Subsidy Non-Energy Subsidy Interest Payment Energy Non-Energy Better targeting Targeted for the poor Database improvement Inflation management Integration with energy subsidy Synergy with social assistance programs and transfer to regions Staple good price management Improving agriculture productivity Cost efficiency Controlling cost of financing Deepening government bond market Controlling debt burden 19

20 hamdanhasan.deviantart.com ALLOCATING MORE ON PRODUCTIVE AVENUES committed to strengthen the quality of its people through infrastructure support, good education and health spending Infrastructure Allocation 2014: Health Allocation (5% of Spending) 2015: : : : Infrastructure acceleration to tackle regional and global challenges Target : Road: 856 km Railway:639 km sp New airports in 15 locations Irigation:781 km Electrification ratio: 95.15%; Housing: 7062 unit 2014: : : : : Focuses: improving supply side, better access, service quality, promoting preventive action, and maintain JKN sustainability. Policy direction Improving distribution of health facilities and health personnel. Strengthening promotive and preventive programs Improving the effectiveness and sustainability of the national health insurance program. Increasing the role of local government for supply side as well as service side. Education Allocation (20% of Spending) 2014: : : : : Focus on improving access, distribution, and quality of education Policy direction Improving access, distribution, and quality of education. Improving school facilities and infrastructure. Synergy between Central and Local Government. Strengthening vocational education and link and match curriculum. Widening access (BOS, PKH, PIP, Bidik Misi and DPPN) for sustainable education. 20

21 Below the line Above the line STRATEGY TO IMPROVE INFRASTRUCTURE Developing new ways to attract infrastructure investment Allocating more money does not necessarily mean an increase in infrastructure quality. The capacity of spending and the quality of spending relation does not align perfectly. For infrastructure spending, Indonesia should invite more private capital (through PPP). Infrastructure funding gap, expected to be potentially fulfilled by either SOE & Private Sector Infrastructure Needs by Sector (In trillions Rupiah) ELECTRICITY PORT ROADS HOUSING OIL & GAS Source : RPJMN Area of infrastructure financing alternative STATE REVENUE Tax Allowance, Tax Holiday, Fiscal Incentives STATE EXPENDITURE Line Ministries (Ministry of Public Works, Ministry of Transportation, Ministry of Energy, etc) Non Line Ministries (o/w. VGF, PDF, grants, PSO) ransfer to the Regions & Vilage Fund (o/w. DAU (25%), Physical DAK, Vilage Fund) TELCO &IT TRAINS AIRPORT OTHERS FINANCING Update on PPP Projects No Status Total projects Sector 1. Financial Close 7 Electricity, water and sanitation, toll road, telecommunication 2. KPBU agreement 8 Toll road 3. On transaction 3 Water supply and toll road 4. FBC (under project development fund) 6 Transport, health facility, toll road, water supply Revolving Fund (o/w. FLPP), Project based bonds (e.g. SUKUK), Capital injection in PT SMI & PT IIF (financing) as well as PT IIGF (guarantee), Subsidiary Loan Agreement, Guarantee, Investment (capital injection) in SOE, Capital injection in BLU LMAN for land clearing 21

22 MEDIUM TERM FISCAL FRAMEWOK Focusing on quality and productive spending, expanding fiscal space and sustainability Uraian (% PDB) APBN ** Revenue & Grants Tax Ratio* Total Spending Capital Expenditure Primary Balance (0.59) (0.30) Budget Deficit (2.19) (1.6) - (1.9) (1.6) - (1.7) (1.5) - (1.7) (1.5) - (1.6) Debt Ratio *Including revenue from oil&gas and general mining ** submitted to parliament for discussion Strengthening quality of spending by increasing productive avenues Enlarging fiscal space through revenue increase Efficiencies in non-priority spending Developing creative and innovative financing Manageable deficit and debt level Positive primary balance in

23 FINANCING PLAN FOR 2018 Creating prudent and sustainable fiscal management Weekly Auction: Government Securities to Meet State Budget Financing Indicative Budget Target Instruments IDR tn USD bn Budget Deficit (2.19% of GDP) Financing Government Securities (Net) Government Securities (Gross) Composition Domestic Government Securities 80-83% International Government Securities 17-20% Domestic Government Securities Conventional securities 24-25x Islamic securities 24-25x Non-Auction Retail Bonds and Retail Sukuk Private Placement Target avg. tenor maturity for Government Securities Issuance USD Sukuk USD EUR JPY International Government Securities Based on request 7-8 years Avoid crowding out in domestic market Provide benchmarks for corporate bonds Investor base diversification Auction Government securities (net) Issuance Targets for Government Securities 25% - 30% Government securities (gross) Government Debt Securities 70% - 75% Government Sukuk Alternative of Issuance Private Placement Book Building Government Securities Financing Realization Realization Budget 2018 (as of May, 2018) IDR tn USD bn IDR tn USD bn % Realization to Budget % % Government debt securities (GDS) % - Domestic GDS International bonds Government Sukuk % - Domestic Government sukuk Global Sukuk

24 SOUND GOVERNMENT DEBT PORTFOLIO MANAGEMENT Portfolio management characterized by stable debt/gdp ratio and well-diversified debt USD billions 24.9% 24.7% Manageable Debt to GDP Ratio Over the Years % 28.3% 29.2% 29.6% Declining Exchange Rate Risks May-18* Apr-18 Securities Loans Debt to GDP Ratio Foreign Debt to GDP Ratio Foreign Debt to Total Debt Ratio Diversified Mix of External Funding Sources Proven Access to Funding Across Multiple Currencies and Markets USD billions % % % % % 3% 2% 2% 1% 1% 1% 3% 3% 3% 4% 4% 5% 12% 9% 8% 7% 6% 6% 29% 29% 32% 31% 29% 30% % % % % % 53% 57% 55% 57% 60% 58% Apr-18 Commercial Debt* Concessional & Semi-concessional Loans *As of May 31, 2018 and using GDP assumption IDR14, tn as mentioned in APBN Kita **Commercial comprises bonds/sukuk issued in the international capital markets and commercial loans Apr-18 IDR USD JPY EUR Others 24

25 SOLID POLICY COORDINATION IN MANAGING FINANCIAL MARKETS VOLATILITY The enactment of Law No. 9/2016 regarding Prevention and Mitigation of Financial System Crises as a legal foundation for the government to serves at the time of financial crisis in the form of Financial System Stability Committee (KSSK) KSSK members: the Ministry of Finance, Bank Indonesia, the Financial Services Authority, and the Deposit Insurance Corporation Gov t Securities Crisis Management Protocol (CMP) Indicators: - Yield of benchmark series; - Exchange rate; - Jakarta Composite Index; - Foreign ownership in government securities Policies to address the crisis at every level : - Repurchase the government securities at secondary market - Postpone or stop the issuance Most important provisions stipulated in the Law: Bond Stabilization Framework Financial system stability monitoring and maintenance by KSSK members based on crisis management protocol of each member; Prevention of financial system crisis, including the mitigation of systemically important bank s liquidity and solvency problems; Recovery Plan for Systemically Important Banks; Bank Restructuring Program State s Budget State Owned Enterprises (SOE) s Budget Social Security Organizing Agency (BPJS) s Budget First Line of Defense Buyback fund at DG of Budget Financing and Risk Management Investment fund at Public Service Agency (BLU) (min. level Aware) Related SOEs (min. level Aware) BPJS (min. level Aware) Gov t Securities CMP Level NORMAL AWARE ALERT CRISIS State s Budget Second Line of Defense State General Treasury Account (Rekening KUN) (min. level Alert) Accumulated cash surplus (SAL) (min. Level Crisis) 25

26 THANK YOU 26