Indonesia reported an unexpected budget deficit as of February 2025, marking a significant shift from the previous year’s surplus. The shortfall reached 31.2 trillion rupiah, or 0.13% of the country’s GDP, according to Finance Minister Sri Mulyani Indrawati, who provided an update during a briefing on Thursday. This contrasts with a 0.11% GDP surplus in the same period last year, based on data compiled.
The country’s fiscal situation echoes the challenges faced in 2021, when Indonesia ran a deficit early in the year as government spending surged to mitigate the economic damage caused by the COVID-19 pandemic.
Despite the unexpected deficit, Indrawati reassured the public, stating that the shortfall was still within the government’s fiscal target for 2025, which remains at 2.5% of GDP. The finance ministry is conducting an ongoing review of the budget, with any changes to the outlook expected to be announced mid-year.
Following the news, Indonesia’s 5-year and 10-year government bond yields increased by 2 basis points and 1 basis point, respectively. The rupiah saw a slight gain of 0.1%, while the stock market experienced a minor dip, down by 0.2%.
A key contributor to the deficit was a sharp decline in state revenues, which fell 21% year-on-year as of February. Tax revenues plummeted by 30%, driven in part by weaker commodity prices. The government also pointed to challenges related to the implementation of Coretax, a new tax administration system that has hindered tax collection efforts. Additionally, President Prabowo Subianto’s decision to cancel a planned increase in value-added tax (VAT) for 2025 further impacted government revenue.
The briefing, which was the finance ministry’s first for the year after an unusual delay, shed light on the complexities surrounding Indonesia’s fiscal outlook. Indrawati explained that the delay was caused by “very unstable” data due to a variety of factors that required careful consideration.
In response to the fiscal challenges, President Prabowo has ordered the government to scale back non-essential projects and reallocate savings toward priority programs. As a result, state spending has decreased by 7% year-on-year as of February. Expenditures on ministries and agencies fell by 30%, while spending on social assistance and subsidies increased.
The finance ministry also confirmed that the budget for Prabowo’s signature free meals program has been more than doubled to 171 trillion rupiah for 2025, aiming to reach 83 million beneficiaries. As of mid-March, the program had already spent 710 billion rupiah to provide meals for 2 million people.
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