Indonesia Proposes 2025 Budget Aiming for Narrower Deficit, According to Reuters

By Stefanno Sulaiman, Gayatri Suroyo, and Fransiska Nangoy

JAKARTA – Indonesia’s outgoing government presented a budget plan for 2025 to parliament, targeting a reduced deficit compared to the current year. Analysts noted that this approach indicates Southeast Asia’s largest economy will likely continue to practice fiscal prudence under its forthcoming president.

The proposed budget, amounting to 3,613.1 trillion rupiah (approximately $230 billion), crafted by the team of outgoing President Joko Widodo and president-elect Prabowo Subianto, anticipates a deficit of 2.53% of GDP for the next year, which is an improvement from the expected 2.7% deficit this year.

Total expenditures are projected to rise by nearly 6% over this year’s forecast. President Widodo, popularly known as Jokowi, emphasized the need for ongoing structural reforms and a commitment to responsible fiscal policy during his address to parliament.

Investors are closely monitoring Prabowo’s initial budget, expressing concerns that he may relax strict fiscal regulations as he has previously hinted at a willingness to take on more debt to achieve an ambitious GDP growth target of 8%.

Indonesian law mandates that the annual fiscal deficit remains below 3% of GDP, and the public debt-to-GDP ratio must not exceed 60%. Currently, this ratio stands at 39%.

Analyst Handy Yunianto from Mandiri Sekuritas remarked that the budget proposal suggests the new administration will maintain a fiscally responsible stance, countering speculation that the debt-to-GDP ratio could rise to 50% within five years, potentially resulting in annual deficits of over 4% to 5% of GDP. He noted that this deficit outlook is favorable for bond investors.

Economist Ryota Abe from Sumitomo Mitsui Banking Corp indicated that the proposal aligns with expectations, although market participants are eager to learn more about the finance minister’s policy strategies under Prabowo’s leadership. Abe expressed particular interest in how Prabowo will aim for an 8% GDP growth rate without compromising fiscal integrity or investors’ risk appetite.

Prabowo, also the defense minister, attended the parliamentary session but did not comment on possible changes to the budget after he assumes office in October.

The budget plan foresees a 5.2% economic growth in 2025, closely mirroring this year’s GDP growth estimate of 5% to 5.2%. Brian Lee, an economist at Maybank Investment Banking Group, considered this growth target achievable given the expansionary measures in the budget and anticipated monetary easing.

Inflation is projected at about 2.5% next year, aligning with the central bank’s target range. Based on GDP growth, inflation, and other estimates, the government anticipates total revenues of 2,996.9 trillion rupiah for the next fiscal year, representing a 7% increase from the current year’s outlook.

The budget proposal includes a new excise tax on packaged sugary drinks, though details were scarce. On the expenditure side, the "Free Nutritious Meals" program, a flagship initiative for Prabowo, is allocated 71 trillion rupiah, consistent with prior announcements. This program will be rolled out in stages, prioritizing regions with high poverty rates and child malnutrition.

Furthermore, a total of 400.3 trillion rupiah is earmarked for infrastructure development, including ongoing construction projects for Indonesia’s new capital city.

The budget also outlines plans to reform energy subsidy policies, shifting from blanket subsidies to a targeted approach for individual beneficiaries.