What Are the Impacts of Raising the National Budget Deficit Ceiling Above 3% If Realised?
Discussions regarding raising the ceiling for the national budget deficit of the State Revenue and Expenditure Budget (APBN) above 3 per cent of Gross Domestic Product (GDP) have emerged within government fiscal policy deliberations. The proposal relates to the possibility of providing greater state spending capacity to support various development programmes and national economic requirements.
However, President Prabowo Subianto has stated his disagreement with the idea of raising the deficit ceiling. According to reports, he views economic policy overly reliant on deficits and debt as an inappropriate approach to managing national finances.
“I hope we do not need to change it. Actually, I do not believe in deficits; perhaps I am an old-fashioned person,” Prabowo stated.
On this occasion, Prabowo also assessed that Indonesia possesses advantages through its abundant natural resources, such as palm oil and coal that are relatively inexpensive and can support national resilience. Additionally, the government is promoting the development of alternative energy sources such as geothermal, solar power, hydroelectric power, and biofuel.
“If we can get through this, within two years we will be very efficient. We will be very, very independent of external sources,” Prabowo added.
However, what exactly are the impacts of raising the national budget deficit ceiling above 3% if it were truly realised?
What Are the National Budget and Budget Deficit?
According to the Regulation of the Minister of Finance of the Republic of Indonesia Number 101 Year 2025, the State Revenue and Expenditure Budget (APBN) is an annual financial plan of the government approved by the House of Representatives. The APBN functions as the primary instrument in implementing the government’s economic policy, as it contains the entire plan for state revenue and expenditure during one fiscal year.
In its formulation, the APBN serves as a tool to regulate national development priorities. The government determines various strategic programmes that will be financed through the state budget, such as infrastructure development, improvement of education quality, health services, social protection, and strengthening defence and security sectors. Thus, the APBN not only functions as a record of the state’s finances, but also as a policy instrument to drive economic growth and public welfare.
The structure of the APBN generally consists of three main components, namely state revenue, state expenditure, and financing. State revenue originates from taxes, non-tax state revenue, and grants. Meanwhile, state expenditure includes various government outlays used to implement development programmes and state operations.
A budget deficit occurs when the amount of state expenditure is greater than state revenue in one fiscal year. In such circumstances, the government must seek financing sources to cover the budget deficit. Such financing is typically obtained through the issuance of government securities, loans, or other legitimate financing sources.
Additionally, the ceiling for the state budget deficit is also regulated in Law Number 17 Year 2003 concerning State Finances, which establishes that the APBN deficit is limited to a maximum of 3 per cent of Gross Domestic Product (GDP), whilst the total government debt is capped at most 60 per cent of GDP. These provisions were established to maintain fiscal discipline so that state financial management remains controlled and does not create excessive financial risks in the future.
In the context of managing regional finances, the Regulation of the Minister of Finance Number 101 Year 2025 also explains that a Regional Revenue and Expenditure Budget (APBD) deficit is the shortfall between regional revenue and regional expenditure in the same fiscal year, which is then financed through regional debt financing.
This regulation also establishes a ceiling on the maximum deficit to maintain controlled fiscal management. It is stated that the maximum cumulative deficit ceiling for the APBD in fiscal year 2026 is set at 0.11 per cent of the projected GDP used in formulating the 2026 national budget. Additionally, the maximum deficit ceiling for each region’s APBD is also set at 2.50 per cent of the estimated regional revenue in the same fiscal year.
This arrangement of deficit ceilings aims to maintain fiscal stability at both the central government and regional government levels. With such ceilings in place, the government is expected to manage the budget more carefully so as not to create excessive financial risks in the future.
Impacts if the National Budget Deficit Ceiling Is Raised
According to reports from the House of Representatives, exceeding the budget deficit ceiling can create a number of consequences for the country’s fiscal and economic conditions. Some of the potential impacts include the following.
- Increased government financing needs
If the deficit becomes larger, the government requires additional financing sources to cover the budget shortfall. Such financing is typically obtained through the issuance of government securities or other loans. This means the government must seek additional funds from the financial market or other financial institutions to ensure all state spending needs continue to be met.
- Potential increase in government debt
Greater financing needs can cause total government debt to increase. In the long term, this debt increase can affect the structure of the country’s finances, particularly if debt growth is faster than the growth of state revenue.
- Increased burden of debt interest payments
As the amount of debt increases, the government must also bear greater debt interest payment obligations each year. This interest burden becomes part of state expenditure that must be allocated in the APBN, thereby reducing budget space for other development programmes.
- Pressure on currency stability