JAKARTA: Some experts are urging the Indonesian government to scale back President Prabowo Subianto’s signature free nutritious meals (MBG) programme, which would help pare back government spending at a time of soaring energy prices amid escalating conflicts in the Middle East.
For 2026, the government has allocated a staggering 335 trillion rupiah (S$25.3 billion) to the MBG programme to feed nearly 83 million beneficiaries, including schoolchildren and pregnant women.
This accounts for 1.3 per cent of the country’s gross domestic product (GDP) and consumes about 11 per cent of the national annual budget.
In January, before the war in Iran began, Citigroup already warned that Indonesia’s increased spending, including on the MBG programme, could put it at risk of breaching its 3 per cent fiscal deficit cap in 2026.
For decades, the Indonesian government has operated on a deficit – spending more on infrastructure, dams and civil servant salaries than it collects in tax revenue – and filling the gap by issuing debt to foreign and domestic investors.
To prevent overspending and keep fiscal policies in check, a strict law limits the budget deficit to 3 per cent of GDP.
To provide more fiscal breathing room, Dr Piter Abdullah, policy and programme director at Jakarta-based think-tank Prasasti, suggested that the government adopt a more flexible approach to its strict 3 per cent annual budget deficit cap by maintaining a 3 per cent average over five years.
This is as fiscal strain on South-east Asia’s largest economy is expected to mount rapidly with global oil prices surging, especially since the government subsidises fuel at pump stations to keep prices relatively affordable for motorists.
“If global oil prices are allowed to fully pass through to domestic fuel prices, it would have a devastating impact on inflation, purchasing power and, ultimately, economic growth and unemployment,” Dr Piter said.
To keep or raise energy subsidies
While Indonesia produces 605,000 barrels of oil per day, it consumes about 1.6 million barrels daily, Energy and Mineral Resources Minister Bahlil Lahadalia noted on his ministry’s YouTube channel on March 12.
In Indonesia, fuel prices are set by the government. When global oil prices surge, it may pass the increase on to consumers or increase fuel subsidies to keep fuel prices unchanged.
Indonesia based its 2026 basic fuel subsidy budget, earmarked at 25.1 trillion rupiah, on an assumed average global oil price of US$70 per barrel. The government also provides compensation funds to the state oil and gas company, Pertamina, which is tasked with mitigating energy price volatility.
But global oil prices have been hovering around US$100 or more per barrel since the US-Israeli attack on Iran, which has triggered widespread disruptions to Middle Eastern supply routes and heightened fears of a broader regional war.
The sudden escalation forced major shipping conglomerates to reroute oil tankers away from critical chokepoints, drastically increasing freight times and insurance premiums. This immediate supply bottleneck shattered the government’s US$70 assumption, threatening to bleed the state’s fuel subsidies within months if pump prices remain artificially low.
Attempting to calm market worries, Finance Minister Purbaya Yudhi Sadewa, when asked by The Straits Times at a March 6 breaking-of-fast gathering, said: “We have had a few episodes in the past where oil prices hit above US$100 a barrel, and we always managed to pull through.”
Prompt response needed
Yet economists told ST that the pressure on Indonesia’s state coffers from surging oil prices must be addressed promptly.
As concerns grow over the strain on energy subsidies – for fuel, electricity and liquefied petroleum gas – some experts have called for the government to prioritise energy subsidies over an extensive free meals programme, arguing that the state cannot afford to fund both fully.
If the government wants to safeguard its finances and prevent a dangerously stretched deficit, spending on the free meals programme must be adjusted, said Muhammad Nalar Al Khair, an economist with the Jakarta-based Sigmaphi Research think-tank.
“One option is to halt the expansion of the MBG kitchen network,” he said. At the end of 2025, 19,188 kitchens were operating, with the aim of increasing that number to 35,000.
Other economists have also suggested a more targeted approach: limiting the MBG programme to primary schools and excluding affluent areas – an idea that Dr Piter says he can get behind.
“The scale of the MBG programme may need to be reviewed,” he said. Dr Piter pointed to a recent study by the University of Indonesia of five primary schools in Jakarta, which showed that only a small number of students finished their meals.
Nailul Huda, an economist with the Jakarta-based Centre of Economic and Law Studies (CELIOS), acknowledged that it would not be easy to scale down or halt the MBG programme, but insisted it is necessary.
“This is a political rather than economic programme,” he said. “It involves kitchens run by individuals affiliated with political parties that back Prabowo.”
He also pointed out that foundations run by the police and the military have been given a slice of the kitchen business. Each MBG kitchen receives regular fund disbursements from the government and is allowed a profit margin for processing and delivering food to schools.
Local news portal Tempo.com reported that the police and armed forces each run more than 500 MBG kitchens and plan to further expand their networks, citing official government statements.
Furthermore, the MBG programme does not contribute significantly to economic growth. A CELIOS study revealed that the programme contributes only 0.06 per cent to GDP.
“That is very little,” Nailul said, adding that the government should temporarily pause the programme and conduct a sweeping evaluation.
“We need fuel subsidies more than MBG to avoid high inflation and job losses,” he said. “What good is it for kids to have food provided at school if their parents are facing problems buying daily food for the family at home?” He added that a family ought to be able to feed its children at home first.
But other economists see the merits of keeping the MBG programme intact.
Fakhrul Fulvian, chief economist at Jakarta brokerage Trimegah Sekuritas, argued that the MBG programme is an initiative designed specifically to protect purchasing power and safeguard the local economy.
“If the MBG budget is slashed or stopped entirely, the ripple effects wouldn’t just hurt the school children receiving the meals,” he said.
“It would severely damage the small-scale economic supply chains – including local farmers and fishermen providing materials and ingredients for the free meals – that have come to rely on the programme right at a time when they are in a fragile process of economic recovery.” - The Straits Times/ANN
