The State's Fiscal Space is Narrowing, Economists Suggest This to Safeguard the Economy

The Indonesian economy recorded growth of 5.61% in the first quarter of 2026. This figure surpassed the growth in the fourth quarter of 2025, which was 5.39%, supported by intensive government spending at the beginning of the year.

Head of the Center for Macroeconomics and Finance at the Institute for Development of Economics and Finance (Indef), M. Rizal Taufiqurrahman, assessed that this is evident from government spending up to April 2026, which has reached Rp 815.0 trillion or surged significantly by 21.81% year-on-year.

This trend of increased spending at the start of the year drove the state budget deficit in the first quarter of 2025 to 0.93% of Gross Domestic Product (GDP). This deficit figure approaching 1% at the beginning of the year is considered risky to widening the maximum annual state budget deficit of 3%.

Rizal believes that if the government continues to conduct spending aggressively for the remainder of the year, the 3% state budget deficit target could be difficult to maintain this year.

“If in just one quarter it’s already nearly 1%, we still have three quarters left. And this has the potential if the stimulus does not truly create significant added value. Even greater than in the first quarter, it will be very difficult to keep it at 3% while prioritising extraordinary fiscal spending with such fantastic growth,” said Rizal during the Public Discussion “Maintaining the Stamina of Indonesia’s Economic Growth”, quoted on Tuesday (12/5/2026).

According to him, the government is likely to use a similar strategy again in the second quarter of 2025. However, Rizal cautioned that the government should not continue to make government spending the main engine of economic growth. Because that pattern makes the cost of economic growth very expensive.

“If it’s done like that continuously, our economic growth will be very expensive. Very expensive if relying on fiscal stimulus pushed up to double digits like that,” he said.

He assessed that fiscal policy should be directed more as a stimulus capable of creating a larger multiplier effect on productive sectors, rather than just supporting short-term consumption.

“Instead, how fiscal policy can become a stimulus to increase and also achieve a higher multiplier,” he said.

From the investment side, Rizal said that the growth of gross fixed capital formation managed to break through 5.09%, with the second largest contribution to GDP, namely 29.77%. However, its structure is still considered suboptimal and tends to be volatile.

Therefore, he suggested that the government not only focus on chasing high economic growth, but also strengthen growth through increasing productivity and the resilience of the national economy.

“Of course, productivity and national economic resilience that is much better will certainly not create a large gap between macro economic growth achievements and the situation at the micro level,” he said.

Looking ahead, Rizal reminded the government of the need to maintain the momentum of economic growth in the second quarter of 2025 to avoid sharp slowdowns after the high consumption and spending momentum at the beginning of the year begins to wane.

“Of course, be careful. Do not rely on it as the main support or engine of economic growth from government spending. If it’s done like that continuously, our economic growth will be very expensive, very expensive,” he said.