TEMPO.CO, Jakarta - An economist from the Bright Institute, Awalil Rizky, predicted that the government of Prabowo Subianto will continue to increase Indonesia's national debt. This prediction is based on the large budget deficit target set by the government in the Macro-Economic Framework and the Basic Policy of Fiscal Policy (KEM-PPKF) 2026.
"A budget deficit, where state revenue falls short of expenditure, requires financing. The primary source of financing for the government is expected to remain in debt," Awalil said in a written release on Friday, May 30, 2025.
In the KEM-PPKF, the target for the deficit in 2026 is set between 2.48 and 2.53 percent of the country's Gross Domestic Product (GDP). The medium-term targets for 2027 to 2029 are similar. The average lower limit is 2.35 percent, and the upper limit is 2.44 percent of the GDP.
According to Awalil, this lower limit target is almost the same as the average during Joko Widodo or Jokowi's first term from 2015 to 2019, which was 2.32 percent. "The KEM-PPKF's fiscal macro posture suggests a continuation of Jokowi's deficit management strategy," he said. For comparison, the average deficit ratio from 2005 to 2014 was only 1.19 percent.
Awalil further explained that the debt required by Prabowo's government is not only to cover the deficit but also for other purposes, such as maturing debt repayments. A deficit, by definition, can only be addressed through new borrowing.
He also pointed out that the government must address additional expenses outside of routine spending, including investments in State-Owned Enterprises (SOEs), investments in Other Business Entities, and loans to Regional Governments and SOEs.
Consequently, he noted that debt financing is almost always greater than the budget deficit. For instance, the 2025 State Revenue and Expenditure Budget (APBN) projects a deficit of Rp616.19 trillion, while debt financing is expected to reach Rp775.87 trillion. Debt financing represents the net value of new borrowing minus the repayment of existing debt.
Unfortunately, he said, the KEM-PPKF's fiscal macro posture table only presents the budget financing ratio, omitting the debt financing ratio, which is only mentioned in narrative form without specific figures. "Based on historical trends over the past decade, it is anticipated that debt financing will continue to outpace the budget deficit," he stated.
Therefore, Awalil asserted that the nominal government debt is projected to rise through 2029, although the government aims to maintain the debt-to-GDP ratio within a controlled range.
The government's debt-to-GDP ratio targets for 2026-2029 are as follows: a lower limit of 39.69 percent in 2026, 39.43 percent in 2027, 39.05 percent in 2028, and 38.55 percent in 2029; and an upper limit of 39.85 percent in 2026, 39.62 percent in 2027, 39.29 percent in 2028, and 38.64 percent in 2029.
He suggested that the government appears to be attempting to avoid exceeding the "psychological threshold" of a 40 percent ratio. During Jokowi's first term, a 30 percent limit was repeatedly emphasized in policy documents, yet this was ultimately surpassed in 2018 (30.31 percent) and 2019 (30.23 percent).
As of 2024, the realized debt-to-GDP ratio reached 39.75 percent. The target for the 2025 State Budget aims to lower this to 39.43 percent. However, considering the year-to-date realization until April, coupled with planned costly new programs, Awalil believes the debt ratio has the potential to exceed 40 percent by the end of 2025.
In contrast, during Susilo Bambang Yudhoyono's presidency, the debt-to-GDP ratio saw a significant decrease of 31.92 percentage points, from 56.60 percent in 2004 to 24.68 percent in 2014. Conversely, Jokowi's tenure witnessed an increase of 15.07 percentage points, rising from 24.68 percent in 2014 to 39.75 percent in 2024.
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