Indonesia raises budget deficit target to fund region transfers
The higher spending plan stems from the increased allocation of transfer funds to regional administrations
[JAKARTA] Indonesia raised its budget deficit target for 2026 on plans for higher government spending, including increased transfers to regions weeks after violent protests rocked the South-east Asian nation.
A parliamentary commission on Thursday (Sep 18) approved a proposal by new Finance Minister Purbaya Yudhi Sadewa to increase the budget gap to 2.68 per cent of gross domestic product, higher than the 2.48 per cent proposed by President Prabowo Subianto last month.
State expenditure will rise to 3,842.7 trillion rupiah (S$297.6 billion), up from 3,786.5 trillion rupiah previously. State revenue will be set slightly higher at 3,153.6 trillion rupiah, up from 3,147.7 trillion rupiah.
The higher spending plan stems from the increased allocation of transfer funds to regional administrations across the archipelago nation. The government now intends to make transfers of 693 trillion rupiah, up from 650 trillion rupiah previously.
Purbaya, who was appointed to his post last week, had promised to boost transfers in the wake of protests that took aim at rising wealth inequality in the nation of more than 280 million people. Many local administrations have cut back services as the central government redirected funds towards national priority programmes such as free school meals and public housing.
The benchmark 10-year yield erased all its earlier decline, while the 5-year government bond yield was still down. The rupiah held a 0.5 per cent loss at 16,515 per US dollar, its weakest level since early August.
“The higher deficit does not bode well for sentiment, but impact is likely to be limited given that it remains below the 3 per cent limit and overall lower than the 2.78 per cent projected deficit for 2025,” said Wee Khoon Chong, APAC market strategist at BNY Mellon in Hong Kong.
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