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View all search resultsAnalysis: 2027 budget sticks to growth agenda despite headwinds
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President Prabowo Subianto looks on as he arrives on Aug. 14 at the Senayan legislative complex in Central Jakarata for the People's Consultative Assembly (MPR) plenary meeting, in which he delivered the State of the Nation address and the 2027 state budget proposal. (Reuters/Stringer) (Reuters/Stringer)
P
resident Prabowo Subianto has unveiled the government’s proposed state budget for the 2027 fiscal year, outlining another substantial expansion in government spending ahead of Indonesia’s 81st Independence Day. Government expenditure is set to rise to Rp 4,097.2 trillion (US$230.4 billion), from Rp 3,842.7 trillion in this year’s state budget, while state revenue is targeted at Rp 3,426 trillion, compared with Rp 3,153.6 trillion this year. The government is also targeting 6 percent economic growth in 2027, reinforcing Prabowo’s longstanding commitment to using government-led initiatives to accelerate growth.
The proposed budget suggests that Prabowo is staying on the same policy trajectory despite the rocky year his administration has faced. Several of his flagship initiatives have encountered significant roadblocks, while others have had to be scaled back from their original ambitions. The free nutritious meal program, for instance, has faced challenges in its rollout, with its 2026 budget subsequently cut from the Rp 335 trillion initially allocated to Rp 268 trillion and then again to Rp 229 trillion. Following Prabowo’s speech, Finance Minister Purbaya Yudhi Sadewa gave a rough estimate that around Rp 240 trillion would be allocated to the program under the 2027 budget, still well below its original 2026 allocation.
Meanwhile, the Red and White Cooperatives program has encountered its own financing problems. After many cooperatives were found to be unable to repay their debts, the government decided to use the state budget to repay around Rp 240 trillion in cooperatives loans to state-owned banks over six years starting in September this year, covering both principal and interest.
Yet these setbacks do not appear to have prompted a broader retreat from Prabowo’s growth agenda. Instead, the 2027 budget suggests that the administration remains committed to using expanded government spending and its flagship programs as key drivers of economic growth.
To fuel this expansion, the government is projecting a substantial increase in revenue. Tax revenue is targeted at Rp 2,908 trillion in 2027, representing a 10.5 percent increase from the Rp 2,631.4 trillion outlook for 2026. Finance Minister Purbaya has expressed confidence that the target can be achieved, pointing to a roughly 30 percent year-on-year increase in tax revenue recorded in August as evidence that strong revenue growth can be sustained into 2027. He argued that the recent increase demonstrated the government’s ability to steadily expand revenue collection, although whether this pace can be maintained over a full year remains to be seen.
At the same time, the government is projecting a narrower fiscal deficit in 2027, targeting 2.4 percent of GDP compared with the 2.68 percent deficit set in the 2026 budget. Purbaya presented the lower deficit, alongside the higher revenue target, as evidence of the government’s commitment to fiscal discipline. The combination of stronger revenue growth and a smaller deficit is therefore being used to frame the 2027 budget as fiscally prudent, even as government expenditure continues to expand.
A key concern, however, lies in the assumptions underpinning the 2027 budget. The government is basing its calculations on a rupiah exchange rate of 17,500 per United States dollar, already weaker than the Rp 17,844 per dollar rate recorded on Aug. 19. It is also assuming an Indonesian Crude Price (ICP) of $75 per barrel, despite the ICP reaching $81.68 per barrel in July and peaking at $102.26 per barrel in March this year.
