INDEF: Prabowo Chooses Fiscal Austerity Over Widening Budget Deficit
Jakarta – The Institute for Development of Economics and Finance (INDEF) has stated that President Prabowo Subianto prefers fiscal austerity rather than widening Indonesia’s budget deficit.
INDEF senior economist Ahmad Tauhid said Prabowo is unwilling to allow the budget deficit to exceed 3 per cent of GDP.
Austerity measures are being considered as a mitigation strategy against surging global oil prices caused by Middle Eastern conflict, which is impacting Indonesia’s economy.
“I have just received information confirming that the President’s policy is indeed to avoid widening the deficit beyond 3 per cent through implementing austerity measures,” Tauhid said in a telephone interview with Kompas.com on Saturday, 14 March 2026.
According to Tauhid, this decision represents an appropriate preventive measure. He cited examples such as delaying non-urgent ministerial spending and programmes.
“Rather than immediately increasing the deficit above 3 per cent, cost-saving efforts should be prioritised,” Tauhid explained.
Another preventive step involves reducing fuel subsidy expenditure. Currently, many fuel subsidies are poorly targeted, according to Tauhid. He noted that four-wheeled vehicles and affluent citizens are receiving fuel subsidies inappropriately.
“Ensuring fuel subsidies reach their intended recipients represents extraordinary savings,” Tauhid stated.
“These are temporary measures,” he added.
Tauhid cautioned that if the budget deficit exceeds 3 per cent, government debt, interest payments, and principal repayment obligations would increase. Investor confidence would decline and fiscal risk would rise, driving up bond yields and increasing borrowing costs.
Tauhid referenced Fitch Ratings’ downgrade of Indonesia’s credit outlook from stable to negative, reflecting concerns about consistency in Indonesia’s economic policy framework.
“Fitch Ratings, Moody’s, and Standard & Poor’s will ultimately adjust their perceptions and our ratings could turn negative next year. This risk requires careful consideration,” Tauhid said.