Finance Minister Purbaya Yudhi Sadewa stated that Indonesia has expanded its budget deficit to approach the three percent legal limit to avoid a recurrence of the 1997-1998 economic crisis.
Speaking at the Indonesia Fiscal Forum (IFF) 2026 in Jakarta, Sadewa expressed that the choice was a challenging one, yet vital in order to sustain the trajectory of national economic advancement amidst increasing pressures of deceleration.
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The government is focused on implementing spending and other policies aimed at revitalizing the economy. Consequently, there will be a broader fiscal deficit.
However, this action is deemed necessary to prevent a situation similar to that of 1998 from recurring, he asserted. Initial figures for the 2025 State Budget reveal a shortfall of Rp695.1 trillion (approximately US$41.4 billion), representing 2.92 percent of GDP, surpassing the original goal of 2.53 percent and nearing the legal cap of 3 percent.
The 2026 state budget has been finalized with a deficit goal of 2.68 percent of the Gross Domestic Product (GDP). Despite facing criticism from multiple sources regarding the government's decision, Sadewa clarified that it was technically feasible for the government to maintain the deficit at approximately two percent.
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However, achieving this would have necessitated reductions in various areas of state expenditure. Given Indonesia's current economic slowdown, he chose to implement countercyclical measures by boosting government spending, particularly through social assistance initiatives and tax incentives.
These policies are anticipated to stimulate robust economic expansion.
The minister emphasized the potential negative impact of tightening fiscal policy on the economy, as well as the additional harm that could result from raising taxes.
As a result, he has opted not to increase tax rates or customs duties, instead focusing on the effective implementation of current strategies. That is the price we must bear to redirect the course of the economy. However, the paramount concern remains the preservation of fiscal sustainability, Sadewa further commented.
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Moreover, President Prabowo Subianto remains optimistic regarding Indonesia's economic growth potential despite the uncertainties in the global landscape. This positive outlook follows commendations from the International Monetary Fund (IMF), which identified Indonesia as a standout performer in the global economy.
The President expressed confidence in his address at the World Economic Forum in Davos, Switzerland. He noted that the IMF's evaluation recognizes Indonesia's steadfast economic growth even in the face of increasing external challenges.