INDEF: Budget Efficiency Requires a Combination of Policies to Maintain the Deficit

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JAKARTA - The Institute for Development of Economics and Finance (INDEF) stated that the budget efficiency plan needs to be supported by a combination of other policies in order to effectively maintain the State Budget (APBN) deficit.

Head of the INDEF Macroeconomics and Finance Center M Rizal Taufikurahman explained that the current fiscal pressure is structural, which comes from energy subsidies, rising interest costs on debt, and priority spending needs.

Therefore, the budget efficiency policy cannot stand alone to keep the deficit under control.

"Therefore, a combination of policies is needed," he said, quoted by ANTARA, Friday, March 27.

In general, he assessed that the government's budget efficiency room was still adequate, but limited and had to be applied selectively.

The realistic efficiency space comes only from non-priority spending, given the increasingly tight spending structure, especially for energy subsidies, employee spending, and debt interest.

"In practice, this is around 5-10 percent of discretionary spending, not total spending. If the cuts target productive spending, the risk is a weakening of growth, especially amid slowing household consumption," explained Rizal.

The implementation of budget efficiency also needs to be ensured to meet the quality of spending requirements, so that its role is not merely a savings.

The main indicators that can be observed to assess the effectiveness of budget cuts include increasing the impact of programs on the budget, improving the Incremental Capital Output Ratio (ICOR), shifting to productive spending, and stabilizing macroeconomic indicators such as growth above 5 percent and controlled inflation.

"In addition, the absorption of the budget more evenly throughout the year is also an important signal. If efficiency only produces underspending without an increase in output, then the impact is actually contractionary for the economy," he added.

To offset this pressure, Rizal highlighted the space for policy optimization through increased revenue, reprioritization of outcome-based spending, and the management of credible financing. These various efforts are considered necessary to be implemented simultaneously with the implementation of budget efficiency.

"Without it, efficiency is only a short-term cushion, while deficit pressures are likely to increase in the second half of the year," he said.