Indonesia's Populist Budget Raises Doubts Over Revenue Goals

Indonesia's budget deficit target for 2026 may be at risk due to President Prabowo Subianto's populist spending promises and lack of new tax measures. Analysts predict a 2.9% fiscal deficit, surpassing the 2.48% target. The rupiah fell 0.5%, and the 10-year bond yield increased 2.5 basis points to 6.4%. The government aims to collect 3,148 trillion rupiah in state revenue, a 10% jump from this year's estimate, mainly through improved compliance and expanding the tax base.

Indonesia's 2026 budget deficit target may be at risk due to President Prabowo Subianto's populist spending promises and the absence of new tax measures. Analysts predict a 2.9% fiscal deficit, surpassing the 2.48% target set by the government. The Indonesian rupiah fell by 0.5%, and the 10-year bond yield increased by 2.5 basis points to 6.4%. The government aims to collect 3,148 trillion rupiah in state revenue, a 10% jump from this year's estimate, primarily through improved compliance and expanding the tax base.

President Prabowo Subianto proposed an IDR 3,786.5 trillion (USD 234 billion) budget for FY 2026, which is 7.3% higher than the latest estimate for 2025 spending. The revenue target is IDR 3,147.7 trillion, about 9.8% higher than this year’s projection. However, the budget targets annual GDP growth of 5.4% and inflation of 2.5%, which are ambitious goals given the current economic climate [1].

Economists have expressed skepticism about the government's ability to meet these targets. Bhima Yudhistira Adhinegara, executive director of the Center of Economic and Law Studies (CELIOS), stated that the fiscal document is "ripe with political aspects to fulfill populist programs" rather than being based on technocratic calculation [2]. The last time Indonesia registered strong GDP growth was in 2013, and it has mostly hovered around the 5% mark since then [2].

The government's ambitious plans include a significant increase in spending on food and energy security, with a budget of IDR 164.4 trillion for food security alone. The plan also includes a nearly doubled budget for the free lunch program, which has raised investor concerns over its potential impact on state finances and budget discipline [4].

President Prabowo has emphasized the importance of eliminating budget leaks and developing innovative financing methods to achieve a zero budget deficit by 2027-2028. However, the current budget deficit target of 2.9% suggests that these efforts may not be sufficient to meet the government's ambitious goals [1].

The government and parliament have nearly six weeks to review and deliberate on the draft budget before it is finalized and passed into law in October. Market participants are closely watching the implementation of these policies, as they could potentially boost market confidence and drive passive inflows [4].

References:

[1] https://www.tradingview.com/news/te_news:478315:0-indonesia-s-2026-budget-forecasts-a-2-48-deficit/
[2] https://www.thejakartapost.com/business/2025/08/17/2026-budget-ripe-with-politics-thin-on-strategy.html
[3] https://voi.id/fr/amp/505840
[4] https://www.businesstimes.com.sg/international/asean/indonesia-targets-5-4-growth-2026-big-spending-food-security-energy-free-lunches