Boosting the Economic Growth through Infrastructure Project in the post COVID-19

Updated: Jan 7

State Budget Allocation in 2021

The policy theme for 2021 or is accelerating economic recovery and social reform. The government utilize the instrument of state revenue and expenditure budget including enhance the allocation on the infrastructure sector. Next's years infrastructure budget is expected to increase 48.4% further to at least IDR 417.4 trillion. It is aimed to compensate as many projects have been delayed this year due to COVID-19 pandemic. The infrastructure budget will come from central government spending of IDR 239.8 trillion, transfers of funds to regions and village funds amounting to IDR 131.8 trillion, and financing of IDR 45.8 trillion.

Infrastructure development policies will be directed at food security, connectivity development, public health development, attracting investment in strategic regions, providing a social safety net through labor-intensive projects and disaster mitigation enhancement. The strategic output targets for 2021 include the construction and rehabilitation of 53 dam units; 600 km of new irrigation networks; 3,900 km of irrigation repair; 965.4 km of road construction; 26.9 km of bridge construction, 446.56 kmsp of railroad construction and airports in 10 locations. In the energy and electricity sector, the government will build a household natural gas network of 120,776 connections, a rooftop solar power plant and 11.8 MWp of cold storage. In addition, the infrastructure budget will be aimed at strengthening the information technology industry to support the development of the digital economy in Indonesia. The government will build base transceiver stations (BTS) in 5,053 locations in disadvantaged, frontier, and outermost areas. Then, the government will also expand the palapa ring internet coverage by 40% in the western part, 30% in the central part and 30% in the eastern part.

State spending allocation based on sector in 2021

There are at least three strategies that will be implemented by the Ministry of Public Works and Public Housing in 2021. First is budget reform. To maximize the spending budget in the next year, the government will start the auction at the end of 2020. In addition, several unproductive budgets that impact national economic growth will be trimmed.

The second is to stimulate domestic industry by choosing local products and no longer imports. Thus, if there is a product that contains imports, it means that there must be a factory in Indonesia. The use of domestic products, especially for Small Medium Enterprises, is expected to restore the national economy. The last strategy is limiting the use of heavy equipment and increasing the portion of work that uses labor.

The five main programs of the Ministry of Public Works and Public Housing are food security in Central Kalimantan, North Sumatra, and East Nusa Tenggara. One of the food security projects is food eastate in Central Kalimantan. The Ministry of Public Works and Public Housing has budgeted IDR 4.4 trillion for rehabilitation and irrigation networks in Blocks B, C and D covering an area of 91,500 hectares.

The second program is the development of industrial estates in Batang, Central Java Province and Subang, West Java. This policy is in line with government policies that focus on attracting direct investment both from within the country and abroad to boost the economy. Then, the Ministry of Public Works and Public Housing also developed five super priority tourism destinations. Other programs are cash intensive in all regions of Indonesia and completion of national strategic projects.

Trend of infrastructure budget during 2016 – 2021 (in IDR trillion)

It is expected that a large enough infrastructure budget will become the backbone of economic growth. The government is targeting economic growth to be in the range of 5.0% next year. This figure is an increase compared to this year's projection of minus 1.7 percent to minus 0.6 percent. With the rolling out of infrastructure activities, economic activity will also be excited again. Infrastructure projects will reduce unemployment and increase productivity. This will lead to a declining in poverty and economic equality.

In a recession situation where consumption is weakening and business actors are threatened with bankruptcy, government spending plays a very crucial role in driving the economy. Various efforts have been made by the government through the National Economic Recovery or Pemulihan Ekonomi Nasional (PEN) program. In the short term, this stimulus will be able to keep the economy from sinking deeper. However, in the long term, the government needs to prepare an exit strategy to restore the economy, at least so that it is the same as the conditions before the crisis. A widening fiscal deficit and a high debt ratio need to be accompanied by fiscal spending that can provide a large multiplier effect for the economy. Infrastructure spending is believed to be the right choice at this time.

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