Economists Advise Government to Cut Major Programmes if APBN Deficit Widens
Jakarta — The government has been advised to review several large-budget priority programmes should pressure on the State Budget (APBN) increase further owing to global economic turbulence.
Awalil Rizky, economist at the Bright Institute, stated that a potential widening of the APBN deficit could occur should key macroeconomic assumptions—particularly crude oil prices and the rupiah exchange rate—deviate significantly from the government’s targets.
“If simulations demonstrate that the deficit will widen substantially, the government will likely need to reduce state spending,” Awalil told Kompas.com on Tuesday, 10 March 2026.
In the simulation, each $1 increase in the Indonesian crude price (ICP) per barrel is estimated to add approximately Rp 3.5 trillion to state revenue. However, state spending would also increase by around Rp 10.3 trillion, potentially increasing the deficit by approximately Rp 6.8 trillion.
The APBN 2026 assumes an oil price of $70 per barrel. Should average oil prices reach $90 per barrel over the year, Awalil estimates the APBN deficit could widen to approximately Rp 136 trillion.
Beyond oil prices, movements in the rupiah exchange rate can exert additional fiscal pressure. The APBN documentation indicates that a Rp 100 depreciation from the assumed rate of Rp 16,500 per dollar would potentially increase the deficit by approximately Rp 0.8 trillion.
However, Awalil observed that the sensitivity analysis remains limited, as it only calculates changes in individual indicators in isolation. In crisis conditions, changes typically occur across multiple economic indicators simultaneously. “The government should have simulation models for scenarios where several macroeconomic assumptions change significantly at the same time,” he stated.
Should such conditions materialise and fiscal pressure intensify, Awalil believes the government must implement adjustments on the spending side of the budget.
Reducing energy subsidies and social assistance spending could theoretically be policy options considered, he noted. Additionally, the government should evaluate several priority programmes with large budget allocations.
Programmes potentially subject to review include the free nutritious meals (MBG) programme, the Red and White village cooperative programme, and spending on major defence systems equipment (alutsista).
Alternatively, the government could widen the APBN deficit limit through regulatory changes, such as issuing a government regulation substituting legislation (Perppu) or revising laws to permit deficits exceeding the 3 per cent of gross domestic product threshold. However, Awalil cautioned that this carries significant consequences, as the government would need to secure additional debt financing.
Given tightening global liquidity conditions, debt financing sources are becoming increasingly difficult to obtain or come with higher costs.
Therefore, Awalil believes the more realistic approach is to restructure state spending, particularly on large-budget programmes, to preserve fiscal space amid rising global economic uncertainty.
“It is better for the government to reduce spending on major programmes to maintain fiscal sustainability,” Awalil concluded.