Mansek Economy Government cut bond issuance following lower budget deficit forecast

The government projected realized deficit for APBN 2010 only 1.5%of GDP (Rp95.1tn)from the targeted 2.1%of GDP (Rp133.7tn)by YE10.The lower budget deficit is due to lower projected realized spending at Rp1,089.8tn (96.8%of total spending),while on the other hand projected realized revenue is Rp994.7tn (100.3%of total revenue).

Consequently,the government planned to cut the budget financing through lowering bond issuance by Rp15tn,reducing the usage of last year ’s cash balance (SILPA)by Rp22tn,and cutting foreign financing by around Rp1tn.

We view this development positively,especially for bond market performance since lower bond issuance will reduce supply bonds in the market and therefore would lessen pressures on bond prices.However, from the macro economic perspective,lower budget deficit could also indicate lower fiscal stimulus,thus lowering the government contribution to the economic growth.Using our assumption that YE10 budget deficit at 1.4%of GDP we expect that the pace of Government spending growth in
2010 would be slower at 12.8%yoy compared with 15.7%yoy in 2009.