Indonesia is embarking on a significant economic transformation with its draft budget for 2025, aiming to reduce the budget deficit to 2.53% of GDP. Outgoing President Joko Widodo has indicated that this is a step down from the current target of 2.7%. The budget, which totals 3,613.1 trillion rupees ($392 billion), shows a 9% increase over the previous year, focusing on economic stability and key social programs, including a pioneering free meals initiative. This initiative is expected to cost around 450 trillion rupiah ($28.6 billion) annually, with an initial allocation of 71 trillion rupiah ($4.5 billion) for 2025, specifically targeting underserved regions. The program aims to stimulate local economies by engaging local businesses in its supply chain.
Despite the increase in spending to support social programs, infrastructure spending is set to decrease by approximately 5%, with allocations dropping to 400.3 trillion rupiah ($25.4 billion). In contrast, the education budget will see a boost of around 9%, reaching 722.6 trillion rupiah ($46 billion). On the revenue side, the government anticipates an 8% rise in tax revenues, totaling 2,490.9 trillion rupiah ($159 billion), contributing to a public revenue growth projection of 2,996.9 trillion rupees ($190 billion) in 2025. Economic growth is forecasted at 5.2%, bolstered by fiscal stimulus and strong export demand from major trading partners.
The upcoming budget will serve as a critical test for President-elect Prabowo Subianto's administration, balancing fiscal discipline with ambitious social initiatives. Investors and economists are keenly observing the potential impact of this budget on economic growth and investor confidence, particularly in light of the projected increase in government spending. According to economist Hosiana Sitomorang from Danamon Bank, the planned spending increase is expected to positively influence economic growth and maintain investor confidence.
- The draft budget reflects Indonesia's commitment to addressing economic challenges while ensuring the welfare of its citizens through enhanced social programs. The focus on education and the free meals initiative highlights the government's priority in uplifting the living standards of the underserved populations. The anticipated growth in tax revenues is critical for sustaining these initiatives, as well as maintaining fiscal health.
- As the Prabowo administration prepares to implement this budget, it will need to navigate the complexities of maintaining investor confidence while delivering on social promises. The balance between social spending and infrastructure investment will be closely monitored, as both are vital for long-term economic stability and growth.
