INDONESIA’S worsening COVID-19 crisis is raising pressure on the government to lift spending and widen the budget deficit, even as rating agencies warn any loosening of the country’s hard-won fiscal discipline could bode ill for its credit ratings.

The world’s fourth most populous nation has Asia’s second highest pandemic death toll and caseload and a slow vaccination program means it is ill-prepared to reopen at the same pace as other countries.

That has increased vulnerabilities in an economy that has been badly hit by capital flight and financial crises in the past.

However, there is now mounting political pressure to address growing economic hardships with the chair of parliament’s influential budgetary committee calling for legislative changes to allow for larger fiscal deficits in 2023.

“The law still allows for it, so we must aim for 5 percent of GDP in 2022. If we go with 4.5 percent, the economy will not get better,” Said Abdullah said in an interview yesterday. The government currently projects a deficit range of 4.51 percent to 4.85 percent for 2022.

By law, Indonesia has an annual fiscal deficit cap of 3 percent of GDP, but this was waived from 2020 to 2022 to make room for pandemic relief measures and would need to be waived again for 2023 under Abdullah’s proposal.

“We can’t just abandon social protection programs even after COVID disappears. The people won’t be ready.”

President Joko Widodo on Sunday extended mobility curbs until at least Aug. 2, although restrictions were eased for some small businesses. The curbs have been in place since early July.

Already, S&P, Moody’s and Fitch said the growing COVID-19 crisis has increased risks to credit conditions and could force the government to raise spending to protect the poor as tax revenues take a hit. The three agencies give Indonesia the second lowest investment grade rating. (SD-Agencies)