Proposals to Widen State Budget Deficit to 3 Per Cent Deemed Realistic, Says Indef
The Executive Director of the Institute for Development of Economics and Finance (Indef), Esther Sri Astuti, has stated that proposals to widen the state budget deficit above 3 per cent are realistic should several macroeconomic assumptions within the budget fail to materialise.
“It will automatically exceed the threshold if all the macroeconomic assumptions in the budget fall short,” Esther said in Jakarta on Saturday (14 March).
Widening the budget deficit, she added, could increase the potential for new debt accumulation. Therefore, according to her, state budget management must be conducted prudently.
“There is concern it could be used to increase debt. Thus, priority should be given to wise management of the state budget,” she stated.
She hopes the government will be selective in determining priorities for state spending. The budget, according to her, should be directed towards programmes with economic impact, such as exports and tourism. Additionally, improvements in human resource quality and technological mastery could strengthen Indonesia’s manufacturing industry.
Coordinating Minister for Economic Affairs Airlangga Hartarto explained that a state budget deficit scenario could reach 4.06 per cent as a result of conflict in the Middle East region.
“The worst-case, pessimistic scenario, with crude oil prices at 115 US dollars per barrel, the rupiah exchange rate at Rp17,500 per US dollar, growth at 5.2 per cent, and sovereign bond yields at 7.2 per cent, would result in a deficit of 4.06 per cent,” Airlangga said following a cabinet meeting.
Airlangga also mentioned an alternative scenario with an assumed state budget deficit of 3 per cent.
Increased consumption is typically driven by the disbursement of year-end bonuses and increased mobility during the mudik (annual migration) season.
Indef assessed that the rupiah exchange rate still faces potential pressure amid increasingly challenging global economic conditions, with the dollar-to-rupiah rate having breached the Rp17,000 mark.
Senior economist Didik J. Rachbini from Indef warned that plans to import 105,000 commercial pick-up vehicles from India risk weakening the national automotive industry and the trade balance.
Indef believes that Ramadan and Eid al-Fitr in 2026 could boost the economy in quarters I-II through the food, transport, and logistics sectors, supported by government stimulus measures.
Downstream policies in the mineral and coal industry still face several obstacles.