Mirae Asset sees 2027 fiscal strategy shifting towards spending effectiveness
PT Mirae Asset Sekuritas Indonesia assesses that the government’s fiscal strategy in the 2027 Draft State Budget (RAPBN) is beginning to shift from programme expansion towards optimising and improving the effectiveness of spending.
Mirae Asset Fixed Income Analyst Jessica Tasijawa said the fiscal challenge in 2027 no longer lies in increasing spending capacity, but rather in ensuring every rupiah of the budget is able to deliver a greater impact on economic growth.
“2027 is no longer about increasing spending, but about how every rupiah can work harder to generate higher growth,” said Jessica in her statement in Jakarta on Monday.
According to her, this strategic shift is reflected in the projected budget growth of the 10 largest ministries and agencies, which is estimated to reverse into a contraction of 1.4 percent in 2027, after growing 38.5 percent in 2026.
In addition, personnel spending is estimated to fall by 34.8 percent in 2027. This condition indicates a tightening and sharpening of budget allocation amid the government’s efforts to maintain economic growth.
The government itself is targeting the fiscal deficit in 2027 to narrow to Rp671.2 trillion, or 2.4 percent of gross domestic product (GDP).
This target is in line with the projected state revenue of Rp3,426 trillion, or 8.6 percent annual growth, while state spending is projected at Rp4,097.2 trillion, or 6.6 percent growth.
Amid a more measured fiscal space, the government is still targeting economic growth of 6 percent in 2027.
Mirae Asset views that achieving this target will depend heavily on the government’s ability to direct spending towards programmes with a higher economic multiplier.
One area of efficiency comes from the Free Nutritious Meals programme. The National Nutrition Agency’s budget in 2027 is projected to fall by 10.4 percent to Rp240.2 trillion.
“The BGN budget in 2027 falls by 10.4 percent to Rp240.2 trillion, while Mirae Asset estimates the realisation of MBG in 2026 at around Rp168-192 trillion,” explained Jessica.
With this efficiency, the government is considered to have room to reallocate the budget to regional transfers or other programmes that deliver a greater economic impact.
From the revenue side, the government is targeting tax revenue of Rp2,908 trillion. Income tax revenue is projected to grow by 9.9 percent, while value-added tax and sales tax on luxury goods are targeted to grow by 13.4 percent.
Jessica assessed that optimising Coretax, improving taxpayer compliance, and strengthening domestic economic activity will be the main sources of revenue growth.
As such, the government is expected not to rely too heavily on revenue from commodity windfalls. Meanwhile, from the financing side, the government’s refinancing needs remain quite large, with government bond maturities of around Rp878 trillion.
However, fund flows from insurance companies and pension funds, estimated at Rp143 trillion, could act as a buffer for government bond yields amid the potential additional supply of government bonds.
She estimates that the 10-year government bond yield in 2027 will be in the range of 7.2 - 7.5 percent. Room for yield declines is still considered limited due to the large need for government bond issuance as well as risks from the rupiah exchange rate and geopolitics.
Nevertheless, if rupiah stability provides room for Bank Indonesia to lower interest rates again, the 10-year government bond yield could potentially fall to the range of 6.6 - 6.9 percent.
“The 2027 market story will hinge on fiscal effectiveness in maintaining growth and rupiah stability, as well as Bank Indonesia’s policy in determining its direction,” said Jessica.