Finance Minister Change: Danamon Bank Economist Discusses Fiscal Policy Challenges

JAKARTA – Irman Faiz, Chief Economist at Bank Danamon, has cautioned that the management of the Budget Surplus (SAL) will be one of the short-term policy tests following the leadership change at the Ministry of Finance from Purbaya Yudhi Sadewa to Suahasil Nazara. Any normalisation of fund placement must be carried out gradually, in a measured manner and in coordination with Bank Indonesia (BI) to minimise pressure on liquidity and funding costs.

“Ultimately, the SAL should continue to function as a fiscal buffer, rather than becoming a permanent source of banking liquidity,” Faiz said in a statement in Jakarta on Monday.

He also highlighted the challenge of balancing the government’s ambitious growth agenda with increasingly limited fiscal space.

For context, the government is targeting economic growth of 6.0 per cent and a fiscal deficit of 2.40 per cent of GDP by 2027.

Faiz said his team maintains a more conservative growth projection of 5.1 per cent and estimates the deficit will stand at around 2.75 per cent of GDP, which remains within the 3 per cent fiscal rule limit.

“This further underscores the need to safeguard fiscal credibility whilst shifting priorities away from low-multiplier spending towards more productive expenditure,” he said.

Broadly, he views the cabinet reshuffle for the Finance Minister position not as a change in Indonesia’s fiscal regime, but rather as a signal of fiscal policy continuity.

Suahasil’s long experience at the Ministry of Finance is expected to limit transition risks, whilst his background as a technocrat provides institutional continuity in the management of the state budget.

Overall, Bank Danamon’s economics team expects fiscal policy to remain supportive of economic growth, with the 3 per cent fiscal deficit limit retained as the primary anchor of credibility.

“Going forward, policy priorities should increasingly shift from merely expanding spending towards improving the quality, multiplier and sustainability of expenditure,” Faiz said.