ISEAI: This Year's Fiscal Condition Enters Critical Phase

The Indonesia Strategic and Economic Action Institution (ISEAI) assesses that this year’s fiscal condition has entered a critical and highly determining phase, where ambitions for high growth directly confront the reality of debt burdens reaching their peak in the modern history of the Republic.

Senior analyst at ISEAI, Ronny P. Sasmita, explains that the primary indicator often used by the Indonesian Government to reassure markets is the government debt-to-GDP ratio, projected to be in the range of 41.3 to 41.5 percent in 2026.

“Although this figure is technically still below the legal limit of 60 percent set by the State Finance Law, a more critical analysis reveals a persistent and concerning upward trend,” said Ronny in the ISEAI Working Paper, quoted on Monday, 20 April 2026.

At the end of 2024, he said, the debt ratio was still at 39.2 percent, meaning an escalation of more than 200 basis points in less than two years. This increase is not merely cyclical fluctuation but a reflection of a structural shift in spending policies that is beginning to exceed the sustainable capacity of state revenue collection.

Ronny notes that the total nominal central government debt at the end of 2025 was recorded at Rp 9,637.9 trillion, with a tendency to continue climbing towards the psychological figure of Rp 10,000 trillion by mid-2026. The dominance of domestic instruments in the form of rupiah-denominated Government Securities (SBN) provides partial protection against exchange rate risks.

However, on the other hand, this creates a deep dependence on domestic banking liquidity. When the government absorbs massive liquidity to finance a widening deficit of up to 2.9 percent of GDP, the risk of crowding out the private sector becomes a real threat to national productivity.

In his analysis, it is explained that the government debt ratio is estimated to rise slightly from 41.0 percent of GDP in 2025 to 41.3 percent in 2026. The budget deficit will also widen from 2.8 percent to 2.9 percent of GDP. On the other hand, real GDP growth is projected to strengthen from 5.0 percent to 5.1 percent, while inflation, measured by the Consumer Price Index, will increase from 2.8 percent to 3.0 percent.

Meanwhile, the foreign debt-to-GDP ratio is estimated to decline slightly from 29.9 percent in 2025 to 29.7 percent in 2026. Foreign exchange reserves will shrink from US$156.5 billion to US$154.6 billion. The primary balance remains in negative territory and worsens from minus 0.5 percent of GDP to minus 0.6 percent.

From this data, according to Ronny, although economic growth is predicted to strengthen slightly to 5.1 percent in 2026, the budget deficit is widening, which automatically pushes the debt ratio to a higher level. This phenomenon indicates that the economic growth occurring is debt-driven rather than driven by increased productivity or independent private investment.

In addition, the decline in foreign exchange reserves in early 2026 is an early indication that interventions to maintain Rupiah exchange rate stability are beginning to erode Indonesia’s external buffers amid rising foreign debt payments.

He explains that Indonesia’s debt structure in 2026 faces challenges from the currency composition perspective. Although the majority of debt is in Rupiah, the portion of foreign currency debt remains significant and highly sensitive to exchange rate fluctuations. When the Rupiah exchange rate depreciates, breaking through the 17,000 per US dollar level in April 2026, the principal and interest burden of foreign debt swells immediately, creating additional pressure on APBN liquidity.

This condition is exacerbated by dependence on foreign investors in the SBN market, whose share has declined but still has the potential to trigger asset price volatility if global sentiment shocks occur.