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Budget deficit may cross 3 percent threshold on costly programs
The Prabowo administration's first 100 days indicate a potential for accelerated debt accumulation to help finance the President's free meals and housing programs, economists say, pointing to a fine balance between spending and revenue generation in the coming years to 2029.
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President Prabowo Subianto (second right) greets cabinet ministers ahead of a plenary meeting at the Bina Graha presidential office in Jakarta on Jan. 22, 2025, where the the President expressed his appreciation for the work of his cabinet and aides since he took office in October 2024. (Antara/Hafidz Mubarak A )
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t the 100-day mark of President Prabowo Subianto’s administration, there is concern that development programs that rely heavily on public spending could turn out more expensive than planned and accelerate government debt accumulation.
Wen Chong Cheah, a researcher at the Economist Intelligence Unit (EIU), told The Jakarta Post on Friday that next year’s forecast based on the President’s policies to date indicated a fiscal deficit of more than 3 percent, which could last for the duration of his five-year term to 2029.
“Prabowo has already announced his intention to raise the fiscal deficit ceiling; we expect that announcement to be made later this year. This will have negative implications [for] the Indonesian rupiah and Indonesia's bonds, raising investors’ concerns over fiscal sustainability in the medium term,” said Cheah.
Prior to his inauguration, Prabowo said he would be more “daring” in fiscal management and opined that pushing government debt to 50 percent of gross domestic product (GDP) would be safe.
Government debt hovered at around 40 percent last year.
Budgeting tightrope
Following the financial and monetary crisis that swept the country in 1997-1998, Indonesia passed a law in 2003 to cap the annual state budget deficit at 3 percent of GDP and accumulated debt to 60 percent of GDP.
