Indonesian Parliament set to approve bigger 2026 budget for Prabowo

JAKARTA - Indonesia’s Parliament moved a step closer on Sept 18 to approving an even bigger spending allocation and a wider fiscal deficit forecast for President Prabowo Subianto than he had sought for the 2026 budget.

Anti-government protests that began in August have unsettled financial markets, leaving investors watching Indonesia’s fiscal plans for signs of weakening discipline after respected finance minister Sri Mulyani Indrawati was sacked last week.

A parliamentary fiscal oversight panel approved a total spending plan of 3,842.7 trillion rupiah (S$296 billion) in the 2026 budget, with the fiscal deficit forecast at 2.68 per cent, said the panel’s chairman Said Abdullah.

The figure is 56.2 trillion rupiah higher than that in Mr Prabowo’s August proposal to Parliament, and about 9 per cent higher than estimated total spending for 2025.

The budget deficit in South-east Asia’s largest economy is forecast at 2.78 per cent of gross domestic product (GDP) in 2025, below a threshold of 3 per cent set by law.

The panel’s revenue target of 3,153.6 trillion rupiah is up 5.9 trillion rupiah over the original proposal and about 10 per cent bigger than estimated revenues in 2025.

A wider parliamentary vote is expected on Sept 23. Parliament, overwhelmingly controlled by Mr Prabowo’s coalition, usually passes the panel’s endorsement.

Dr Sri Mulyani prepared Mr Prabowo’s original budget proposal.

The wider deficit plan was fine, said the new Finance Minister, Dr Purbaya Yudhi Sadewa, who added: “It’s still below 3 per cent (of GDP) and is needed to create higher economic growth. Don’t worry, we will be prudent.”

Mr Prabowo has set a GDP growth target of 5.4 per cent for 2026, aiming for a rate of 8 per cent within his five-year term, which runs until 2029.

The government is seizing the chance to pursue policies that drive growth with the wider fiscal gap as the US Federal Reserve looks likely to maintain an accommodative stance until the first half of 2026, said economist Victor Matindas from BCA, one of Indonesia’s biggest banks.

Assistant Professor Telisa Falianty, an economist with the University of Indonesia, said Indonesia must find ways to increase revenues from non-tax sources, rather than relying on bonds issuance to plug the widening budget gap.

Regional transfers increased

Although the budget allocation for regional governments has been increased to 693 trillion rupiah from the original 650 trillion rupiah, it is still about a fifth less than regional transfers in 2025.

Regional leaders had complained that Mr Prabowo’s original proposal would lead to increases in land and building taxes to cover the shortfall.

The concession was meant to maintain social and political stability at local levels, Dr Purbaya said, promising spending by Jakarta on development programmes nationwide to make up for the smaller transfers.

There was no immediate breakdown of the changes, but senior Finance Ministry official Febrio Kacaribu said the budget for Mr Prabowo’s priority spending was unchanged.

The allocation for a flagship programme of free meals for students and pregnant women is 335 trillion rupiah. Defence spending was 335.3 trillion rupiah in the original proposal. REUTERS