Indonesia recently submitted its 2025 budget plan to parliament, with a focus on maintaining a narrow deficit and continuing structural reforms. The budget proposal, prepared by outgoing President Joko Widodo’s economic team and president-elect Prabowo Subianto’s team, aims to project a deficit of 2.53% of GDP next year, which is narrower than the expected deficit for this year.
The budget proposal worth 3,613.1 trillion rupiah includes total expenditure that is almost 6% higher than the forecast for this year. President Jokowi emphasized the importance of structural reforms, maintaining healthy fiscal policies, and enhancing collaboration between fiscal, monetary, and finance policies. This demonstrates a commitment to fiscal prudence, even under the new government.
Investors have been closely following Prabowo’s first budget, concerned that he might abandon strict fiscal rules in pursuit of ambitious growth targets. However, the proposal clarifies that the new government aims to remain fiscally prudent. By law, the government must keep the annual fiscal deficit under 3% of GDP and the public debt-to-GDP ratio below 60%, which is currently at 39%.
Handy Yunianto, head of fixed income at brokerage Mandiri Sekuritas, expressed positivity towards the proposed deficit level, stating that it is favorable for bond investors. Economist Ryota Abe at Sumitomo Mitsui Banking Corp noted that the budget plan aligns with expectations but emphasized the importance of monitoring the policies pursued by Prabowo’s pick for finance minister.
The budget proposal assumes a GDP growth of 5.2% in 2025, similar to the forecast range for this year. Brian Lee, an economist with Maybank Investment Banking Group, believes that the growth target is achievable with the expansionary plans outlined in the budget and expected monetary easing. The proposal also includes projections for inflation, revenue generation, and specific spending allocations.
The budget proposal includes allocations for key initiatives such as Prabowo’s “Free Nutritious Meals” program and infrastructure development, including the construction of Indonesia’s new capital city. Additionally, there is a focus on reforming the government’s energy subsidy policy to move towards targeted distribution to individual beneficiaries.
Indonesia’s 2025 budget plan reflects a commitment to fiscal prudence, economic growth, and targeted social programs. By maintaining a narrow deficit, adhering to fiscal rules, and implementing structural reforms, the government aims to sustain investor confidence and achieve its growth targets. The proposed budget lays the foundation for sustainable economic development and effective governance in the years to come.