Indonesia’s budget deficit for 2025 reached 2.92% of GDP, one of the widest in over two decades. This is close to the legal ceiling, driven by low revenue, high social welfare spending, and economic stimulus measures. Financial markets are closely watching the country’s fiscal situation.
Causes of the 2025 Budget Deficit
The 2025 deficit amounts to 695.1 trillion rupiah ($41.39 billion). It is the largest deficit in over two decades, excluding 2020 and 2021, when the government removed the deficit ceiling to manage COVID-19 expenses. In comparison, the 1999-2000 budget deficit reached 3.9% of GDP, showing the severity of the current situation.
Revenue Shortfalls and Increased Spending
Revenue collection fell short due to low commodity prices, which impacted tax income. At the same time, government spending increased. Key programs like the free school meal policy, costing $6 billion, and fiscal stimulus measures, amounting to $6.6 billion, added pressure. Finance Minister Purbaya Yudhi Sadewa stated that these efforts were necessary to keep the economy growing.
Government’s Plan for the Future
Despite the rising deficit, Minister Purbaya is optimistic that the budget deficit will decrease in 2026, with a target of 2.68% of GDP. The government plans to boost revenue by improving tax enforcement and addressing issues like under-invoicing in palm oil exports. The government also plans to make tax collection more efficient, supporting fiscal health in the future.
Welfare Spending and Economic Growth
The government has allocated substantial funds to welfare programs in 2025. It tripled the budget for free school meals to 335 trillion rupiah, aiming to cover 83 million recipients. These measures are expected to create jobs and stimulate economic activity, helping the country meet its 5.4% growth target for 2025, up from 5.2% in 2024.
Concerns About the 2026 Budget Deficit
Looking ahead to 2026, economists are concerned about the potential for a high deficit unless tax collection improves. With President Prabowo Subianto’s new programs, the risk of a persistently high deficit remains. Increased revenue is essential to maintain fiscal stability.
Indonesia’s 2025 budget deficit stands at 2.92% of GDP due to weak revenue and high social welfare spending. With a target of 5.4% growth, the fiscal outlook remains uncertain. Indonesia 2025 budget deficit.
