Sufficient revenue: Purbaya (left) and Sri Mulyani Indrawati, the former finance minister, at a ceremony in Jakarta. Purbaya says Indonesia might not need to issue as much debt if the economy performs better and generates higher tax revenues. — Bloomberg
JAKARTA: The House of Representatives passes the 2026 state budget, approving higher spending that will widen the fiscal deficit as President Prabowo Subianto seeks to accelerate economic growth.
House Budget Committee (Banggar) chairman Said Abdullah said the 2026 budget was designed to help the country navigate a rapidly changing global environment.
“The world is increasingly caught in a narrative of wars that may appear logical and truthful but, in fact, conceal falsehoods,” Said told the plenary session.
“Will the 2026 state budget serve as a strong tool for the government? That will ultimately depend on the government itself.”
Said added that the government should formulate a “debt management road map” to help achieve fiscal balance in future state budgets.
“The Committee and the government also agreed on a key medium-term plan to shift the country’s growth strategy from debt-driven to revenue-driven,” he said.
The approved budget sets spending at 3.84 quadrillion rupiah, comprising 3.15 quadrillion rupiah in central government expenditure and 693 trillion rupiah in regional transfers.
The government allocated an additional 43 trillion rupiah for regional transfers to maintain social and political stability, following public protests over steep increases in land and property taxes imposed by regions to compensate for earlier cuts in central transfers.
In the August proposal, the government had sought a significant 25% cut in regional transfers for next year, reducing central support from 864 trillion rupiah this year to 650 trillion rupiah.
This year’s reduction in regional spending has led to higher property taxes in some regions, sparking protests in Pati, Central Java, and other areas.
State revenue is projected at 3.15 quadrillion rupiah, 5.9 trillion rupiah above the original proposal and about 10% higher than the 2025 projection.
The increase is expected to come from an additional 4.2 trillion rupiah in non-tax revenue collected by six ministries and agencies.
The government projects a fiscal deficit, spending exceeding revenue, of 689.1 trillion rupiah next year, equivalent to 2.68% of gross domestic product (GDP).
This is wider than the original forecast of 2.48% in the draft budget unveiled by Prabowo in August.
Macroeconomic assumptions in the 2026 budget include an average rupiah exchange rate of 16,500 rupiah per US dollar and an Indonesian Crude Price (ICP) of US$70 per barrel, which will affect spending on subsidies and compensation.
With a wider deficit, fiscal financing needs are expected to rise.
The government anticipates raising around 832.2 trillion rupiah through debt issuance, bringing total gross financing requirements to 1.72 quadrillion rupiah, an increase of 61.9 trillion rupiah from earlier estimates, according to data from private lender Bank Danamon.
Finance Minister Purbaya Yudhi Sadewa said Indonesia might not need to issue as much debt if the economy performs better and generates higher tax revenues.
Speaking at a press conference on Monday, Purbaya said that the recent stimulus package was also designed to support that goal.
However, experts have expressed doubts about whether next year’s higher spending will generate sufficient revenue to finance the plan, warning that the government’s reliance on debt could undermine investor confidence. — The Jakarta Post/ANN
