Indonesia: Fiscal risk monitor #9 – The government raised its fiscal deficit target for 2026

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Indonesia: Fiscal risk monitor #9 – The government raised its fiscal deficit target for 2026

Nomura | Asia Insights 8 July 2026

Nomura’s view: We maintain our fiscal deficit forecast of 3.0% of GDP for 2026

We continue to forecast a fiscal deficit of 3.0% of GDP in 2026 on a headline basis, and

the MOF’s budget outlook, which envisages a wider deficit, supports our forecast further.

However, we continue to think more below-the-line spending could be utilized to

accommodate any slippage (i.e., stealth increase in fiscal deficit), which is projected to

increase in the 2026 budget. As noted above, the budget financing is tracking above 50%

as of June, which suggests government’s borrowing needs have materially increased in

H1. We are pencilling in a more modest tax revenue growth assumption than the budget

outlook, based on our 2026 nominal GDP growth forecast of about 9.0%. We think

domestic demand will likely remain subdued due to structural constraints, which may pose

a challenge to VAT collections (see AsiaInsights-Indonesia:Whyweakconsumptionis

likelytolingerandmorepolicysupportisneeded, 24 June 2025).

Our forecast also incorporates a central government expenditure growth assumption that

is higher than the MOF’s 2025 outlook, likely compensated by a decline in transfer to

regions. We think the push for Prabowo’s priority programs will remain strong, as seen in

the upward revisions to expenditures in the outlook and amid higher subsidy and

compensation disbursements.

The government recently announced that the 2026 budget for the free nutritious meal

(MBG) program will be cut by IDR67trn to IDR268trn from IDR335trn.[2] However, the

2026 budget law already indicates the allocation for the MBG program through the

ministries (i.e., National Nutrition Board) is IDR268trn.