Indonesia’s 2025 Budget Proposal

By Stefanno Sulaiman, Gayatri Suroyo, and Fransiska Nangoy

JAKARTA (Reuters) – Indonesia’s outgoing government submitted a 2025 budget plan to parliament on Friday, targeting a narrower deficit than this year. Analysts noted this signals that Southeast Asia’s largest economy will remain fiscally prudent under its next president.

The budget proposal, worth 3,613.1 trillion rupiah ($230 billion), was prepared by ministers under outgoing President Joko Widodo and President-elect Prabowo Subianto’s economic team. It projects a deficit of 2.53% of GDP for next year, narrower than this year’s expected 2.7%.

Total expenditure is expected to be almost 6% higher than the forecast for this year.

“We must continue structural reforms, maintain healthy and credible fiscal policy, and enhance collaboration of fiscal, monetary and finance policy,” Jokowi told parliament.

Investors are closely monitoring Prabowo’s first budget, concerned he might abandon strict fiscal rules after hinting at a desire to take on more debt to achieve a GDP growth target of 8%.

By law, the government must keep the annual fiscal deficit under 3% of GDP, while the public debt-to-GDP ratio cannot exceed 60%, currently at 39%.

Handy Yunianto, head of fixed income at brokerage Mandiri Sekuritas, said the proposal clarifies that the new government would be fiscally prudent, contrary to rumors of increasing the debt-to-GDP ratio to 50% over the next five years, which could lead to an annual deficit of 4% to 5% of GDP. He described the deficit level as positive for bond investors.

Economist Ryota Abe at Sumitomo Mitsui Banking Corp commented that the plan was as expected, but the market wants clarity on the policies of Prabowo’s finance minister. “I’m focused on how Prabowo will accelerate Indonesia’s GDP growth to 8% without damaging fiscal policy and investors’ risk appetite,” he stated.

Prabowo, attending the parliamentary session as defense minister, did not respond to questions about potential budget changes once he takes office in October.

Achievable GDP Growth Target

The new budget proposal assumes the economy will expand by 5.2% in 2025, consistent with this year’s forecast range of 5% to 5.2%.

Brian Lee, an economist with Maybank Investment Banking Group, believes this growth target is achievable given the expansionary plans in the budget and expected monetary easing.

Inflation is projected at about 2.5% next year, within the central bank’s target range. Based on GDP, inflation, and other assumptions, the government forecasts total revenues of 2,996.9 trillion rupiah next year, marking a 7% increase from this year’s outlook.

The proposal includes a new excise tax on packaged sugary drinks, although details were not provided.

On the spending side, 71 trillion rupiah is allocated for Prabowo’s flagship “Free Nutritious Meals” program, unchanged from prior announcements. This program aims to be implemented in stages, starting in regions with high poverty and child stunting rates.

Additionally, 400.3 trillion rupiah is proposed for infrastructure spending, which includes the ongoing construction of Indonesia’s new capital city. Reforms to the energy subsidy policy are also planned, shifting from blanket subsidies to targeted distributions.

($1 = 15,686 rupiah)