Budget Efficiency Between Reality and the Need for Fiscal Space
Budget efficiency in state finances can no longer be viewed merely as routine administrative policy but has become a strategic necessity demanding precise direction and in-depth analysis.
Amid global uncertainties, fiscal policy is not just about savings but also about how the state maintains development sustainability without losing its ability to respond to crises. Therefore, budget efficiency must be placed within a broader framework as an instrument to balance fiscal realities with the increasingly urgent need for fiscal space.
In recent years, Indonesia has demonstrated good fiscal discipline, particularly after successfully reducing the state budget deficit below 3% post-pandemic. However, this condition does not necessarily reflect ample fiscal space. Increasing global pressures, especially due to geopolitical conflicts and energy price volatility, are beginning to test the national fiscal resilience more seriously.
Based on data from the Ministry of Finance of the Republic of Indonesia (2025), the 2026 state budget deficit is planned to be in the range of 2.6–2.8% of Gross Domestic Product (GDP), with remaining high financing needs. The government debt ratio is around 39–40% of GDP. This is still within safe limits but indicates continuously increasing financing pressures. At the same time, Indonesia’s tax ratio remains around 10–10.5% of GDP (Ministry of Finance, 2024), far below the average for advanced countries above 30% (OECD, 2024).
This condition shows that Indonesia’s fiscal space is still available but increasingly limited and vulnerable to external shocks. In this context, budget efficiency cannot be understood merely as short-term saving measures but must be a strategy capable of maintaining fiscal sustainability while ensuring the effectiveness of state spending.
The current pressures on Indonesia’s fiscal situation are heavily influenced by global energy dynamics, particularly due to conflicts between the United States, Israel, and Iran. These tensions drive volatility in world oil prices, directly impacting the increased burden of energy subsidies. The International Energy Agency (IEA, 2024) notes that in conflict situations, oil prices can surge by 20–30% in a short time.
Indonesia’s experience in 2022 showed that spikes in energy prices could push subsidy and compensation spending beyond Rp500 trillion (Ministry of Finance, 2023). Additionally, every $1 increase in oil prices per barrel has the potential to add around Rp3–4 trillion to the subsidy burden (Ministry of Finance, 2022). These pressures not only enlarge the deficit but also reduce fiscal flexibility in funding various priority programmes.
On the other hand, external pressures also come from global monetary policies. The International Monetary Fund (IMF, 2025) states that high interest rates in advanced countries increase the risk of capital outflows from emerging markets, which ultimately drives up government debt costs. The combination of energy and financial pressures simultaneously narrows the national fiscal space.