Fiscal Expansion Tends to Weaken
Although the 2pendency 2027 Draft State Budget (RAPBN) is higher than in 2026, Indonesia’s fiscal space and expansion remain fundamentally weak. In 2027, the total State Budget (APBN) is recorded at Rp 4,097.2 trillion, while state expenditure in 2026 is recorded at Rp 3,842.7 trillion. In absolute terms, the 2027 budget has indeed increased.
However, when the allocation of state funds is directed more towards non-productive activities, the increase in the 2027 budget may prove meaningless in supporting economic growth—let alone improving public welfare. With relatively limited fiscal space, the challenge for the government in utilising the 2027 Draft State Budget is not merely the scale of government spending, but also the composition of allocation and the quality of its utilisation. The role of the state budget should not only be to ensure economic activities continue to grow, but equally importantly, to ensure that public welfare continues to improve. Regardless of how large our fiscal space is, it will be futile if it fails to boost welfare levels and reduce the number of poor people.
Regarding the quality of budget utilisation, the World Bank’s Macro Poverty Outlook (April 202able 2026) reported the number of poor people at 64.2 per cent, or approximately 179,760,000 individuals. According to World Bank calculations, an individual is categorised as poor if their monthly income to meet basic living needs is less than Rp 1,512,000. For instance, a family with two children would no longer be categorised as poor if their income exceeds Rp 6,048,000.
Compared to data from the Central Bureau of Statistics (BPS), which reported the number of poor people in Indonesia at 22.93 million or 8.07 per cent, the World Bank’s figure is significantly higher. According to BPS, a family with two children is categorised as non-poor if their monthly income is above Rp 2,676,940, or Rp 669,235 per capita per month. Regardless of the differences in calculation methods and poverty lines used, the World Bank’s figures must be recognised as a more realistic reflection of the current condition of Indonesian society.
Contrary to the claims of some officials who believe that development allocations and programmes are well-targeted, the real conditions on the ground necessitate a re-evaluation. When the use of the state budget is heavily absorbed by financing jumbo projects that do not directly impact the improvement of community economic activities or encourage human resource development, paradoxes inevitably emerge.
It is considered a paradox because, despite the government’s success in achieving growth rates of 5 per cent and above, the practical reality does not always run parallel to that achievement. When the private sector’s growth engine is struggling due to structural inflation and unresolved global uncertainty, state intervention often becomes the only remaining support.
The problem is that instead of throwing a large lifebuoy or deploying a lifeboat to save passengers on a ship threatened by leaks, the government often only throws a thin, fragile rope. Weak fiscal expansion not only fails to revive the economic engine but also causes various government stimulus packages to fail in achieving their expected results. The utilisation of state funds, which is often used to finance jumbo projects of a purely charitable nature, actually leads to inefficiency.
Ideally, state budget funds should be utilised for programmes that possess a multiplier effect. When the government allocates funds for infrastructure, social security, or industrial subsidies, that money should flow into workers’ wages, vendor profits, and household consumption. However, a multiplier effect requires a certain critical mass to function.
When the injected funds are too small, the stimulus will inevitably evaporate to pay off past debts or simply be saved due to fear of the future. Instead of triggering new consumption, the funds are absorbed into a black hole of economic anxiety. It is reported that, in addition to relying on government aid, current public consumption is generally drawn from remaining savings, and in some cases, even from loans.
What is happening in Indonesia today is akin to someone trying to light a campfire in unfavourable weather. Amidst the lightning strikes of global economic instability and a fragile national economic foundation, weak fiscal space and expansion will inevitably have little impact. Even if all allocated budgets are fully absorbed, the fire of economic activity will never ignite because the heat generated is always outpaced by the coldness of the rain.
Indonesia needs a large torch to overcome this humidity in one go. Timid economic interventions will only waste fiscal space without ever achieving truly self-sustaining growth. The scenario where the people become more prosperous through various jumbo-funded programmes will inevitably reach a dead end because the expected multiplier effect does not occur.
Re-evaluating the funding allocation for development programmes in the state budget and formulating programmes that are truly contextual for the community is no longer avoidable. Experience has taught us much…