Airlangga Reports to Prabowo That 3% Budget Deficit Ceiling Difficult to Maintain

Jakarta — Coordinating Minister for Economic Affairs Airlangga Hartarto has reported to President Prabowo Subianto regarding scenarios of potential conflict between Iran, the United States and Israel in the Middle East that could put pressure on Indonesia’s 2026 budget deficit.

He stated that all simulations conducted point to the budget deficit potentially breaking through the maximum limit set out in the State Finance Law, which is 3% of gross domestic product (GDP).

“This means that with various scenarios, maintaining a 3% deficit is difficult unless we cut spending and economic growth,” Airlangga said during a full Cabinet meeting at the State Palace in Jakarta on Friday, 13 March 2026.

Airlangga said the scenarios he used to calculate this risk assumed the Middle East conflict would last between six and ten months, with global crude oil prices rising to between US$97 and US$115 per barrel.

In the lowest-risk scenario, if Indonesia’s crude oil price reference (ICP) moves to US$86 per barrel from the budget assumption of US$70, the exchange rate moves to Rp17,000 per US dollar from the assumed Rp16,500, economic growth reaches 5.4% and sovereign bond yield is 6.8%, the deficit would reach 3.18%.

In the moderate scenario, if ICP moves to US$97 per barrel with an exchange rate assumption of Rp17,300, economic growth of 5.2%, and sovereign bond yield rising to 7.2%, the budget deficit would balloon to 3.53%.

In the worst-case scenario, if ICP reaches US$115 per barrel, the exchange rate is Rp17,500, growth is 5.2%, and sovereign bond yield is 7.2%, the deficit pressure would reach 4.06% of GDP.

“These are some scenarios that may need to be discussed more carefully,” he concluded.