Indonesia fiscal deficit soars to 2.9% of GDP, near legal limit

[JAKARTA] Indonesia’s fiscal deficit hit the highest level in at least two decades, outside of the pandemic, approaching the legal cap of 3 per cent of gross domestic product in President Prabowo Subianto’s first full year in power.

The budget shortfall stood at 695.1 trillion rupiah (S$53.2 billion) or 2.92 per cent of GDP in 2025, Finance Minister Purbaya Yudhi Sadewa said in a briefing on the unaudited figures. That exceeded both the original target of 2.53 per cent and a revised goal of 2.78 per cent.

Bloomberg data going back to 2005 show the deficit ratio was the highest on record outside the pandemic years of 2020 and 2021.

Purbaya said the deficit widened as the government sought to maintain spending “with the mission of keeping the economy expanding amid high global uncertainty,” while ensuring that the shortfall did not exceed the 3 per cent limit, set in the aftermath of the 1997-1998 Asian financial crisis.

The deficit underscores the mounting fiscal challenges facing Prabowo as he strives to boost growth with populist initiatives even as revenue dwindles due to a slowing economy.

The metric is closely eyed by investors, mindful of the risks of fiscal slippage in a country that spent decades rebuilding its international credibility after receiving a bailout during the Asian crisis.

“Fiscal concerns could stay alive in Indonesia, as investors would continue to watch fiscal sustainability under the new finance minister,” said Jeffrey Zhang, an emerging-markets strategist at Credit Agricole CIB. “We expect the actual fiscal deficit ratio to stay within 2.8 to 3 per cent in the coming years, as breaching the 3 per cent legal limit would risk a rating downgrade.”

The rupiah held a small loss against the US dollar after the budget data, while the benchmark 10-year government bond yield was unchanged. Stocks erased earlier gains.

“The question for market participants would be whether this year’s deficit would be the same as last year’s or even higher,” said Lionel Priyadi, a fixed-income and macro strategist at Mega Capital in Jakarta.

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The high deficit might push the rupiah lower to 16,900 against the US dollar and the benchmark yield to as high as 6.2 per cent as outflow risks loom, he added.

Budget breakdown

While state expenditure grew 2.7 per cent to 3,451.4 trillion rupiah in 2025 compared to the year before, state revenue shrank 3.3 per cent to 2,756.3 trillion rupiah. Indeed, tax collection barely hit 90 per cent of the government’s target.

Deputy Finance Minister Suahasil Nazara said tax revenue was eroded by high tax refunds due to declining business profits – particularly in the trade and mining sectors – as well as fiscal incentives granted to Indonesian consumers. Weaker commodity prices for oil, coal and nickel also hit non-tax revenue, which also fell last year.

The fiscal deterioration is likely to intensify scrutiny of Finance Minister Purbaya, who took office in September, as his early policy moves have yet to deliver a meaningful boost to growth or revenue.

Last week, Purbaya pulled back about US$4.5 billion of the government’s cash deposits in state-owned banks, admitting that while the funds had eased short-term liquidity, his major initiative has so far done little to spur productive lending.

Purbaya succeeded the veteran Sri Mulyani Indrawati, whose fiscal probity made her an investor favourite. She was replaced in September after popular protests over the cost of living. BLOOMBERG