Arya News - Although the gap remains below the legal cap of 3 percent, some experts have warned that mounting pressure could challenge the state’s capacity to sustain President Prabowo Subianto’s expansive spending agenda without weakening the balance sheet.
JAKARTA – Indonesia’s fiscal deficit is projected to swell beyond the initial forecast for this year as weak tax receipts coincide with a surge in second-half spending and rising borrowing needs, which has prompted calls for the government to rein in its big-ticket plans to avoid piling on more debt.
The Finance Ministry now estimates a fiscal deficit of Rp 663 trillion (US$40.3 billion), or 2.78 percent of the country’s gross domestic product (GDP), up from 2.53 percent as originally forecast in the 2025 state budget plan.
Although the gap remains below the legal cap of 3 percent, some experts have warned that mounting pressure could challenge the state’s capacity to sustain President Prabowo Subianto ’s expansive spending agenda without weakening the balance sheet.
Wen Chong Cheah, a researcher at the Economist Intelligence Unit (EIU), said fiscal pressures were surfacing “earlier than expected”, as the government had not fully disbursed funds for its flagship programs.
“The government must either scale down its programs and operations as it did earlier this year or introduce higher taxes,” Cheah told The Jakarta Post on Friday, noting that reprioritizing or phasing in major initiatives would be a more prudent approach.
Fitch Ratings has also flagged growing uncertainty in Indonesia’s fiscal outlook following the midyear state budget review, warning that weak revenues and rising social and infrastructure spending, such as the free nutritious meal and the village cooperative programs, could push deficits higher in the coming years and weigh on the country’s credit profile.
The ratings agency said the government’s measures to boost spending efficiency, including reallocating 1.3 percent of GDP in budget cuts to fund the free meals program, might struggle to deliver results due to implementation challenges, potentially leading to underspending.
“A material increase in the overall public debt burden, bringing it closer to the level of BBB category peers, resulting, for example, from a substantial rise in fiscal deficits, could trigger negative rating actions,” Fitch Ratings’ Asia-Pacific Sovereigns team told the Post on Friday.
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Real pressure
Finance Minister Sri Mulyani Indrawati said state revenue had come under “real pressure” due to factors including weak tax collection to result in the lowest midyear figure in three years.
According to the ministry’s latest figures, tax revenue, which makes up the bulk of government income, is now projected to fall Rp 82 trillion short to reach just 94.9 percent of the full-year target of Rp 2.71 quadrillion.
Sri Mulyani told the House of Representatives Budget Committee (Banggar) on Thursday that the tax-to-GDP ratio was expected to reach only 10.03 percent this year, down from the previous outlook of 10.24 percent and slightly below the actual ratio of 10.08 percent in 2024.
Budget execution meanwhile reached only 37 percent in the first half of 2025, or around Rp 1.4 quadrillion, meaning the government would need to disburse Rp 2.2 quadrillion over the remaining six months to meet its full-year spending goal of Rp 3.6 quadrillion.
The free meals program, one of the largest spending items in the state budget, had disbursed only Rp 5 trillion by June out of an allocation of Rp 171 trillion. This meager amount relative to the total fund had supported 1,800 participating vendors and provided meals to 17.9 million beneficaries, far short of this year’s target of 32,000 vendors and 82.9 million beneficiaries, or 5.6 percent and 21.6 percent, respectively.
Another prominent initiative set for the second half of 2025 is the Red-White Cooperatives program, which aims to launch 80,000 cooperatives in villages nationwide by mid-July at a total cost of Rp 400 trillion.
“I don’t believe these major programs will be delivered as planned, as there’s no funding and the bureaucracy lacks the capacity,” said Wijayanto Samirin, an economist at Paramadina University.
Speaking to the Post on Friday, Wijayanto warned that pushing ahead with the spending plan, even within the 3 percent deficit cap, might backfire and lead to higher debt servicing costs, tighter liquidity and reduced investor appetite for government bonds.
Moreover, underwhelming tax collection and below-target government spending could further weigh on growth, he added, making it unlikely that the state’s economic targets would be met.
“If we can still grow by 4.7 percent this year, that would already be something to be grateful for,” Wijayanto said.
The Finance Ministry has revised down its 2025 growth forecast to between 4.7 and 5 percent from an earlier projection of 5.2 percent, citing external headwinds and slowing domestic momentum.
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To help plug the widening deficit, the ministry has proposed using Rp 85.6 trillion from the accumulated budget surplus (SAL) to cover the shortfall.
Despite drawing down on the SAL, the state budget remains heavily reliant on the bond market. In the first quarter alone, the government front-loaded sovereign bond issuance totaling Rp 250 trillion, around 40 percent of its full-year borrowing target, to cover an early-year deficit of Rp 104 trillion.
The House Budget Committee approved the move on Thursday while urging restraint in issuing new bonds and emphasizing the need to boost state revenue in the second half of the year.
“Issuing more bonds indefinitely is not sustainable, especially given the current global market instability,” Banggar deputy chair Wihadi Wiyanto said on Thursday.
“The focus now must be on improving revenue performance to keep the budget on track,” he emphasized.