INDEF Says Fiscal Restraint Safer Than Expanding Budget Deficit

Jakarta — The Institute for Development of Economics and Finance (INDEF) has stated that fiscal restraint is safer than expanding Indonesia’s state budget deficit.

INDEF economist Tauhid Ahmad said that widening the budget deficit in response to Middle Eastern conflicts and rising oil prices would increase the nation’s debt burden.

“Yes, that’s correct (it is safer). The risk is that economic growth will decline, which I consider normal,” Tauhid told Kompas.com by telephone on Saturday (14 March 2026).

Tauhid argued that cutting government spending across certain budget lines is more prudent than raising the budget deficit above 3 per cent.

Government debt, interest payments, and principal repayments would inevitably increase.

“I think if the deficit is widened, that will happen,” Tauhid said.

Investors would also question Indonesia’s economic condition because of a deficit exceeding safe limits. As a result, borrowing costs would rise because bond yields would also be expensive.

“Investor confidence will decline,” he noted.

When the government issues bonds to absorb funds from the domestic market, it increases government debt and reduces private sector investment. Ultimately, interest rates rise.

The impact is that retail and corporate investors prefer to buy State Securities (SBN), putting pressure on the private sector.

“The private sector struggles to obtain third-party funding or financing because retail and corporate investors prefer to buy SBN,” he said.