Economist stresses effectiveness of state spending to drive economic activity

With state spending of Rp4,097 trillion, the issue is not only the size of the budget but how effectively that spending drives economic activity.

Economist at the Center of Reform on Economics (CORE) Yusuf Rendy Manilet has emphasised the effectiveness of state spending in stimulating economic activity.

“With state spending of Rp4,097 trillion, the issue is not only the size of the budget but how effectively that spending drives economic activity. If absorption is slow or less productive, the 6 percent growth target for next year will be difficult to achieve,” Yusuf told ANTARA in Jakarta on Friday.

In the 2027 Draft State Budget (RAPBN), President Prabowo Subianto has set next year’s state spending at Rp4,097.2 trillion, up from Rp3,842.7 trillion in the 2026 State Budget.

Budget financing for 2027 is planned at Rp671.2 trillion, down from the Rp689.1 trillion financing plan in the 2026 State Budget.

On the other hand, state revenue is estimated to reach Rp3,426 trillion, up from Rp3,153.6 trillion in the 2026 State Budget.

The budget deficit is targeted at 2.40 percent of Gross Domestic Product (GDP), down from 2.68 percent of GDP in the 2026 State Budget.

“A deficit of Rp671.2 trillion or 2.4 percent of GDP is indeed still within safe limits under the rules, but it still needs to be watched because our tax ratio remains low and revenue has not always met targets. Moreover, the assumption of a 6.9 percent yield on 10-year government bonds means financing costs remain high,” Yusuf added.

If global conditions tighten again or investor sentiment deteriorates, he continued, the interest burden could increase and fiscal space could narrow further.

He therefore believes that economic activity can be boosted by strengthening investment, productivity and manufacturing, as well as increasing the added value from downstream processing.

Regarding the rupiah assumption of Rp17,500 per US dollar, which is higher than the Rp16,500 per US dollar in the 2026 State Budget, Yusuf considers that this indicates considerable external risk.

“A weaker rupiah will increase the cost of importing raw materials and foreign currency debt payments, while also suppressing people’s purchasing power. If the depreciation lasts for a long time, industrial production costs will also rise and ultimately could hold back growth,” he said.