Indonesia's revenue growth sluggish at 5.7% in 4M13

Here's what to blame.

According to DBS, pressure on the budget has been building as revenues and expenditures get pulled in different directions.

Revenue growth has been slow, averaging just 5.7% YoY in the first four months of the year and we suspect that depressed commodity prices have a large role to play as economic growth still held above 6%.

Here's more from DBS:

Comparatively, expenditures were up by an average of 20.4% YoY over the same period.

Fuel subsidies, which have been largely unchanged since 2005, are to blame as the rising middleclass brought about exponential growth in vehicle ownership.

As a result,the rolling 12 months fiscal deficit has been widening steadily since mid-2011. If revenue growth remains lackluster, there are risks that the budget deficit cap of 3% of GDP would be breached.

Talks are ongoing about a potential 33% average price hike across subsidized fuels once the revised 2013 budget is passed.

However, given uncertainties about the timing and noting that fuel price changes have always met with fierce political resistance, our core scenario does not take into account any adjustment in fuel prices through our forecast horizon.

If fuel prices get raised in July, inflation in 2H13 is expected to reach 8.0% YoY compared to our current forecast of 5.3%. Meanwhile, 2013 GDP growth would likely slow to 6.0%, compared to our current projection of 6.3%.

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