By The Straits Times | Created at 2026-08-14 10:11:59 | Updated at 2026-08-14 11:03:12
52 minutes ago
JAKARTA – Indonesia’s President Prabowo Subianto plans to narrow the budget deficit in 2027 in an effort to rebuild state finances after heavy spending in 2026 on his signature campaign pledges.
The government is targeting a fiscal shortfall of 2.4 per cent of gross domestic product (GDP) in 2027, lower than the expected 2.85 per cent in 2026, Prabowo said in a speech to parliament on Aug 14.
Indonesia is also targeting economic growth of 6 per cent for 2027, similar to the outlook set for 2026.
The 10-year government bond yield held its drop of 4 basis points at 7.18 per cent after the president’s remarks, the lowest in over a month. Rupiah non-deliverable forwards extended their gain to 0.4 per cent, while stocks were up 1.1 per cent.
Prabowo’s 2027 budget – the second so far in his presidency – will need to strike a balance between shifting Indonesia’s economy to a higher gear, without breaching the statutory fiscal ceiling of 3 per cent of GDP. The risk of a bloated budget deficit has made investors uneasy and triggered bond sell-offs earlier in 2026.
“Fiscal discipline must be present in every rupiah that is spent,” Prabowo said in his budget speech. “So far, too many ministries and local governments have been purchasing the same goods, but they buy them separately at different prices.”
The ex-general trumpeted S&P Global Ratings’ move to affirm Indonesia’s credit rating as a sign of his government’s prudence and sustainable debt burden.
“We accept this assessment as a reminder that credibility is built on consistent hard work and dedication. The world doesn’t just judge what we announce; it judges what we actually do,” he said.
However, he made no mention of the negative outlooks from Fitch Ratings and Moody’s Ratings.
An intensified anti-corruption drive, as well as greater state control over Indonesia’s natural resources, could also help fill the government’s coffers.
Earlier on Aug 14, Prabowo railed against bureaucrats, state firms, police and military over corruption and waste. He also said state-owned enterprises should remit 200 trillion rupiah (S$14.37 billion) in dividends to the state in 2026 – a 40 per cent jump from the 142 trillion rupiah paid in 2025.
South-east Asia’s biggest economy has grown faster than expected so far this year, propelled mainly by robust domestic consumption and investment. Indonesia has managed to keep up with peers like Singapore and Malaysia, despite not enjoying a similar lift from artificial intelligence manufacturing and exports.
Government spending has been a key driver of Indonesia’s 5.45 per cent GDP growth in the first half of 2026 – its best print in 13 years. Generous fuel and electricity subsidies, along with transport discounts and food aid, have helped sustain activity despite the Middle East conflict spurring global energy costs.
However, that has sent central government expenditure nearly 30 per cent higher in the January-June period from a year earlier.
How far the government can restrain spending will therefore be crucial to creating more fiscal room. That includes the scope of Prabowo’s flagship programmes, including the distribution of school meals and the creation of village cooperatives, each costing US$13 billion (S$16.63 billion) in 2026. BLOOMBERG
