Fiscal Space Growing Tighter Amid Global War Pressures

Researcher from the Center of Macroeconomics and Finance at INDEF, Riza Annisa Pujarama, has highlighted the tight domestic fiscal space even before global pressures intensified due to the Iran versus US and Israel war. Riza explained that this tightness stems from continuously increasing expenditures amid slowing tax revenues; deepening deficits accompanied by negative primary balance values; and rising debt interest payments and energy subsidy expenditures.

“Then, the dominance of routine expenditures, which now reaches more than 40 percent of total central government spending, while productive expenditures such as capital spending are squeezed, remaining around eight to nine percent of total central government spending,” said Riza during a discussion titled “2 Months of Israel-US vs Iran War: Beware of Impacts on the Economy!” in Jakarta on Thursday (30/4/2026).

Amid the ongoing geopolitical turmoil, Riza noted that the domestic economy is also affected. Several macroeconomic assumptions in the 2026 state budget have missed targets as of April 2026, starting from the rupiah exchange rate hovering around Rp17,280–17,400 per US dollar, oil prices breaching $100 per barrel, to rising SBN yields.

Riza stated that the impacts are not only on increased energy subsidy burdens but also on debt interest payments, which have now exceeded 20 percent of government spending, with a large total of maturing obligations. Riza said that fiscal sensitivity in the 2026 RAPBN document shows that every rise in oil prices and weakening exchange rate will directly widen the deficit.

“Based on those estimates, additional subsidy needs could reach around Rp219 trillion if crude oil prices hit $100 per barrel,” said Riza.

In this situation, Riza emphasised that the government needs to maintain stricter fiscal discipline while improving spending quality. Riza said that reforming energy subsidies is crucial to make them more targeted, followed by improvements in the accuracy of recipient data.

Furthermore, Riza added, social protection also needs to be strengthened, particularly for middle-class groups vulnerable to energy price hikes but not fully covered by social assistance. Without appropriate steps, Riza assessed, the risk of the deficit breaching the three percent limit could impact investor confidence and overall economic stability.