Indonesia's 2026 Economic Growth Target Projected to Fall Short by Three Global Institutions

Three international institutions project that the government’s target for Indonesia’s economic growth in 2026 will be missed. The latest institution to publish its report is the International Monetary Fund (IMF). The government is targeting economic growth of 5.4% in 2026, an assumption within the 2026 state budget (APBN) where the fiscal deficit is also predicted to be 2.68% of gross domestic product (GDP). According to the World Economic Outlook Update published by the IMF in July 2026, economic growth for developing countries and emerging markets is forecast to slow to 3.8% in 2026. Indonesia, as one of the developing countries and emerging markets, is forecast to record economic growth of 5% this year. This prediction is unchanged from the same report in April 2026. The projection also remains unchanged for Indonesia’s economic growth in 2027, forecast to grow by only 5.1%, nearly the same as the 5.11% achieved throughout 2025. Meanwhile, the government’s target for 2027 is ambitious. Based on the Macroeconomic Framework and Fiscal Policy Principles (KEM PPKF) for the 2027 Draft State Budget, the government is targeting an economic growth range of 5.8% to 6.5%. The lower bound alone already exceeds the IMF’s projection, as well as those of two other international institutions, the World Bank and the Organisation for Economic Co-operation and Development (OECD). The World Bank’s Global Economic Prospects report from June 2026 projected Indonesia’s economy would grow by only 5%, unchanged from its April 2026 publication. For 2027, the World Bank projects higher growth of 5.2%. The OECD provided a lower projection, forecasting Indonesia’s economy to grow by only 4.7% this year, recovering to 5% in 2027. BTN Macro Economist Myrdal Gunarto assessed that the latest IMF projection, which is not aligned with the government’s target, is reasonable, as Indonesia is seen to be facing significant external pressures. These external pressures, in the form of oil price volatility, not only directly affect the purchasing power of the middle class but also impact the government’s fiscal capacity to drive economic growth. The government recently estimated that the 2026 state budget deficit will widen from the target of Rp689.1 trillion, or 2.68% of GDP, to Rp734.3 trillion, or 2.81% of GDP, assuming the Indonesian Crude Price (ICP) rises to an average of US$83 per barrel this year. Myrdal explained that external pressure limits the government’s capacity for fiscal expansion because the room for expansion is constrained by the need to maintain subsidies, especially for the lower-middle class. He acknowledged that while 5% growth is still high compared to China and Malaysia, the more limited state budget space makes growth less than optimal. External pressure also affects investment activities, particularly foreign direct investment, meaning the impetus for the economy is expected to come more from domestic businesses. Another risk that could erode national economic growth prospects is exports, evident from the May 2026 trade balance which recorded a deficit of US$1.61 billion amid a decline in net exports. Myrdal stated that government spending is central, as the government’s ability to maintain public purchasing power, especially regarding energy prices, will determine consumption growth.