What is the Impact of the Middle East Conflict on Indonesia's Fiscal Health? This is the Economist's View

Senior economist from Paramadina University, Wijayanto Samirin, has urged the government to take fiscal management more seriously amid rising pressures on the State Revenue and Expenditure Budget (APBN) due to the geopolitical conflict in the Middle East. Wijayanto stated that the current fiscal condition is a critical point that could trigger various economic issues if not handled carefully. “If the fiscal situation is not managed well, the problems could spread everywhere,” Wijayanto said at the Unlocking Growth in the Middle-Income Trap event held in Jakarta on Tuesday (7/4). Wijayanto noted that various economic indicators are still considered reasonably good. However, there is one parameter deemed highly concerning: the fiscal condition that could become the main source of instability. On the other hand, Wijayanto mentioned that the government’s planned budget efficiency measures will not have a significant impact if they do not target the largest spending items, such as cuts to civil servant (ASN) expenditures. In his view, several programmes’ budgets must be reduced to strengthen the fiscal position, for example, flagship initiatives like the Free Nutritious Meals (MBG) programme and the Red and White Village/Urban Ward Cooperatives (Kopdes/Kel Merah Putih). Furthermore, fiscal pressures are also expected to be felt by local governments, particularly due to cuts in transfers from the central government. He predicted that by the third quarter of 2026, several regions could face financial difficulties that disrupt operations. “The government will indeed carry out efficiencies, but as long as major expenditures are not reduced, it will not be meaningful. For example, the MBG programme, Kopdes/Kel Merah Putih, and defence equipment spending,” he emphasised. The surge in global oil prices due to geopolitical conflicts is seen as potentially pressuring Indonesia’s energy resilience and fiscal health. The government’s decision not to raise subsidised fuel (BBM) prices aims to protect people’s purchasing power amid current global economic pressures. Limitations on employee spending at a maximum of 30% of the Regional Budget (APBD), as regulated in central-regional finance rules, lose relevance when not matched with adequate fiscal support. Finance Minister Purbaya Yudhi Sadewa stated that the APBN realisation as of 28 February 2026 shows strong and stable fiscal performance. Fauzo revealed that last year’s tax revenue realisation, which only reached 86.7 percent, is a red flag for the government. Although the informal sector acts as an economic buffer, it does not provide adequate welfare guarantees for workers. The use of excess budget balance (SAL) of Rp420 trillion as a cushion also needs to be critiqued. With cuts and savings here and there, the government ensures the APBN deficit can be kept around 2.9%. Finance Minister Purbaya Yudhi Sadewa reaffirmed that Indonesia’s economic stability remains maintained despite facing global uncertainties due to geopolitical escalation. The soaring global oil prices raise concerns about domestic fiscal pressures. The room to maintain the APBN deficit without exceeding the 3% threshold is becoming more challenging.