Indonesia: Deficit seen contained – UOB

UOB Global Economics & Markets Research economists Enrico Tanuwidjaja and Vincentius Ming Shen assess Indonesia’s fiscal metrics, noting a primary surplus in May despite rapid expenditure growth. They highlight strong tax-driven revenue supported by the Coretax system, elevated central government spending on social programs, and maintain a 2026 fiscal deficit forecast near 2.9% of Gross Domestic Product (GDP), with potential narrowing if tax reforms and spending cuts succeed.

Fiscal stance, deficit and financing risks

"Indonesia’s fiscal position improved in May, with the primary balance returning to a surplus of IDR58.6tn."

"As a result, the fiscal deficit widened slightly to 0.70% of GDP from 0.63% in April, although it remained well below the statutory ceiling of 3% of GDP, preserving ample fiscal policy flexibility."

"Looking ahead, prudent fiscal management remains essential."

"We maintain our fiscal deficit projection of approximately 2.9% of GDP for 2026, reflecting sustained government spending momentum."

"Nevertheless, the deficit could narrow should revenue-enhancing measures—particularly tax reforms—prove effective and expenditure rationalization measures, such as a reduction in the Free Nutritious Meals Program budget from IDR335tn to IDR268tn (and recent newsflow indicated that it could even materialize to under IDR200tn), be implemented successfully."