The discourse regarding widening the budget deficit space above the\n3% limit of Gross Domestic Product (GDP) requires high vigilance against\nthe risk of increasing the government\u2019s debt burden. Widening the\ndeficit will certainly increase financing needs, primarily through the\nissuance of Government Securities (SBN), which risks driving up yields\nand debt costs if not managed carefully.<\/p>\n
Professor Rahma Gafmi, an Economics Professor at Airlangga\nUniversity, emphasised that continuous widening of the deficit could\nincrease the debt-to-GDP ratio. This has the potential to narrow the\ngovernment\u2019s future fiscal space if not accompanied by an increase in\neconomic capacity and state revenue.<\/p>\n
\u201cA continuously growing deficit will increase the debt-to-GDP ratio,\u201d\nRahma told Media Indonesia on Thursday (17\/9).<\/p>\n
Rahma explained that the 3% deficit limit is not theoretically a\nsacred number, but rather an adoption of the Maastricht criteria from\nthe European Union in the 1990s. Although evaluating this limit is\npossible according to domestic needs, loosening it brings macroeconomic\nrisks that must be strictly anticipated.<\/p>\n
One of the main risks is the increasing supply of SBN in the market.\nIf the market\u2019s ability to absorb this additional issuance is low,\npressure on SBN yields will increase. This rise in yield will make\ngovernment financing costs more expensive and burden interest payments\nwithin the State Budget (APBN).<\/p>\n
Furthermore, widening the deficit can trigger a crowding-out effect.\nThis condition occurs when government financing needs drive up domestic\ninterest rates, thereby increasing borrowing costs for the private\nsector, which ultimately pressures national investment and economic\nactivity.<\/p>\n
Rahma believes that the quality of spending is the key. Additional\nfiscal space must be directed towards sectors with a high multiplier\neffect, such as education, health, research and development (R&D),\nand public investment.<\/p>\n
\u201cThe issue is not just the size of the deficit, but the quality of\nspending,\u201d she asserted. Using debt for productive spending is crucial\nso that additional financing can increase production capacity and state\nrevenue in the future.<\/p>\n
Without strengthening productivity, the debt-to-GDP ratio will rise\nwithout being balanced by adequate fiscal capacity. Consequently, the\ngovernment\u2019s flexibility in financing priority programmes in subsequent\nyears will become increasingly limited as the budget portion is absorbed\nby interest and principal debt payments.<\/p>\n
As a solution, Rahma suggested implementing conditional flexibility\nif the 3% limit is evaluated. Widening the deficit must have a clear and\ntemporary upper limit (ceiling rule).<\/p>\n
\u201cThere must be a mechanism to return to reducing the deficit when\neconomic conditions improve,\u201d she said. This step needs to be supported\nby tax reforms to expand the state revenue base so that development does\nnot continue to rely on debt.<\/p>\n
In the long term, fiscal expansion must be directed towards bringing\nIndonesia out of the middle-income trap through structural\ntransformation, improving the quality of human capital, and\nstrengthening regional connectivity. Downstreaming must also be further\ndeveloped across longer value chains and technology transfers.<\/p>\n
In conclusion, widening the deficit space will only be beneficial if\nfollowed by fiscal discipline, high spending quality, and increased\nnational productivity. Without these elements, an increase in the\ndeficit will instead become a burden that narrows economic movement in\nthe future.<\/p>\n
Fauzo revealed that last year\u2019s tax revenue realisation, which only\nreached 86.7 per cent, serves as a red note for the government. The\npolicy to increase spending in 2025 is already on the right track.\nHowever, the great challenge ahead is ensuring its effectiveness.<\/p>\n
The MSME sector, numbering approximately 57 million units, serves as\nthe backbone of the economy, contributing 60.5 per cent to the Gross\nDomestic Product.<\/p>\n
Indonesia\u2019s Gross Domestic Product (GDP) growth also recorded\npositive sentiment throughout the full year of the Prabowo\nadministration in 2025. Details show that ministry\/agency (K\/L) spending\nreached Rp658.9 trillion, a 40% increase, while non-K\/L spending reached\nRp639.7 trillion, a 20% increase.<\/p>\n
Purbaya stated that the government will keep the 2026 State Budget\nhealthy through efficient budget financing and controlling the deficit\nso that it does not exceed the limit. The discussion of the\nMacroeconomic Economic Framework and Main Points of Fiscal Policy\n(KEM-PPKF) for 2027 must be directed towards maintaining domestic\neconomic strength.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/discourse-on-widening-the-budget-deficit-debt-risks-and-spending-quality-1789660924", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }