Post by : Sameer Farouq

Indonesia Set to Approve Bigger 2026 Budget Under Prabowo

Indonesia is preparing for a larger government budget in 2026, with spending set to rise under President Prabowo Subianto’s leadership. The country’s parliament is expected to approve the new fiscal plan later this month, giving the government more space to push economic growth while still keeping the deficit under control.

The budget decision comes at a sensitive time. Anti-government protests that began in August have unsettled markets, and the sudden dismissal of Finance Minister Sri Mulyani Indrawati has created worries among investors about whether the government will remain disciplined with its finances.

Spending Increase in 2026 Budget

A parliamentary fiscal oversight panel has approved total government spending of 3,842.7 trillion rupiah ($233 billion) for 2026. This amount is 56.2 trillion rupiah higher than the proposal President Prabowo submitted in August, and about 9% larger than estimated spending in 2025.

The plan sets the budget deficit at 2.68% of GDP, a slight increase compared to this year’s forecast of 2.78% of GDP. Importantly, the figure remains below Indonesia’s legal deficit ceiling of 3%.

Revenue for 2026 has also been revised upward. The new revenue target is 3,153.6 trillion rupiah, which is about 10% higher than estimated revenues for 2025.

Smooth Approval Expected

The full parliament is expected to vote on the budget on September 23. Since Prabowo’s coalition controls a majority of seats, approval is considered highly likely.

The original proposal was prepared by former finance minister Sri Mulyani before she was removed from office. The new finance minister, Purbaya Yudhi Sadewa, has defended the slightly wider deficit, saying it is still safe and necessary to support higher growth. “It’s still below 3% of GDP and is needed to create higher economic growth. Don’t worry, we will be prudent,” Purbaya assured lawmakers.

Economic Growth Targets

Prabowo has set an ambitious target for Indonesia’s economic growth. For 2026, the goal is 5.4% GDP growth. Over his five-year term, which runs until 2029, Prabowo hopes to raise growth to as high as 8%.

Economists say the timing may help. Global financial conditions are expected to remain favorable as the U.S. Federal Reserve is likely to maintain a supportive monetary policy until at least mid-2026. This gives Indonesia room to borrow and spend without facing high interest costs.

Victor Matindas, an economist with Bank Central Asia, noted: “The government is seizing the chance to pursue policies that drive growth with the wider fiscal gap.”

Revenue Challenges

Experts warn that Indonesia cannot rely too heavily on borrowing to fund the wider gap between spending and revenue. Telisa Falianty, an economist from the University of Indonesia, stressed the need to increase non-tax revenues instead of depending too much on bonds.

Without strong revenue growth, a bigger deficit could eventually strain public finances.

Regional Transfers Adjusted

One area of debate in the budget has been funding for local governments. In the revised plan, regional transfers will increase to 693 trillion rupiah, up from the original proposal of 650 trillion. However, this is still about 20% less than what regions received in 2025.

Regional leaders had complained that the earlier proposal would force them to raise local taxes, including land and building taxes, to cover shortfalls. The new increase is meant to calm those concerns and maintain social stability.

Finance Minister Purbaya promised that even with smaller transfers compared to 2025, the central government in Jakarta would spend more on nationwide development programs to balance the difference.

Priority Programs and Defense

Despite the adjustments, the budget for Prabowo’s priority programs remains unchanged.

• A major flagship initiative is the free meals program for students and pregnant women, with an allocation of 335 trillion rupiah.

• Defense spending is also high on the agenda, with a budget of 335.3 trillion rupiah as set in the original plan.

Officials say these priorities reflect Prabowo’s twin goals of boosting human development and strengthening national security.

Political Context

The new budget comes amid political tensions. Anti-government protests that began in August have raised questions about the government’s direction. Many investors are also concerned after the removal of Sri Mulyani, a finance minister widely respected for her commitment to fiscal discipline.

Prabowo’s decision to expand spending may reassure citizens hoping for faster growth, but it could also raise concerns about whether the government is spending responsibly.

Balancing Growth and Stability

Indonesia is Southeast Asia’s largest economy, and its policies affect the region as a whole. The challenge for Prabowo’s government will be to boost growth without weakening financial stability.

The budget shows a careful balancing act: spending more on programs and development, but keeping the deficit below the legal 3% ceiling.

If managed carefully, the plan could help lift Indonesia toward its ambitious growth targets. But if revenues do not rise as expected, the country may face pressure from rising debt.