Prabowo Unveils US$230 Billion Budget for 2027, Aims to Reduce Deficit
In a move aimed at stimulating economic growth, Indonesian President Prabowo has proposed a budget of 4,097.2 trillion rupiah (approximately US$229.73 billion) for 2027, marking a 3.9 per cent increase from the projected spending level for this year. The ambitious budget, which is expected to fuel economic growth, has been welcomed by investors and analysts alike.
A Smaller Deficit, a Brighter Future
The proposed budget deficit is a significant 2.4 per cent of GDP, down from the 2.85 per cent of GDP deficit projected for 2026. This marks the smallest gap since 2024 and is a testament to Prabowo’s commitment to fiscal discipline. Indonesia’s law limits the government’s annual budget deficit to 3 per cent of GDP, a target that Prabowo’s administration has seemingly managed to surpass.
Revenues on the Rise
Revenues are expected to reach 3,426 trillion rupiah next year, a 6.8 per cent increase from this year’s estimate. This growth in revenues is expected to be driven by a 6 per cent GDP growth rate in 2027, with the inflation rate expected to remain within the central bank’s target range of 2.5 per cent. The rupiah exchange rate is expected to average at 17,500 per dollar, while the 10-year bond yield is expected to average at 6.9 per cent.
A Growth-Friendly Budget
Prabowo’s budget proposal is designed to stimulate economic growth, with a target to bring economic growth up to 8 per cent by the end of his presidential term in 2029. This ambitious target is a departure from the government’s official GDP growth target of 5.4 per cent for this year, which Prabowo believes can be surpassed with a growth rate of 6 per cent. The second quarter of this year saw economic growth of 5.3 per cent, a positive trend that Prabowo’s administration hopes to build upon.
A Mixed Reaction from Investors
Prabowo’s economic agenda and fiscal policies have been under scrutiny from investors since he took office in October 2024. The administration’s decision to increase the government’s fuel subsidy budget this year, following a spike in global crude prices, had raised questions about how his costly flagship programmes can be funded. The depreciation of the rupiah and large outflows of capital triggered by concerns about Indonesia’s fiscal health, the independence of its central bank, transparency issues in the equity market, and his controversial policy to centralise commodity exports have also complicated Prabowo’s fiscal agenda.
A Positive Outlook
Despite these challenges, Prabowo’s budget proposal has been welcomed by investors and analysts, who see it as a positive step towards reducing the country’s fiscal deficit. The administration’s commitment to fiscal discipline and its ambitious growth targets have sparked optimism about Indonesia’s economic prospects. As the country looks to the future, Prabowo’s budget proposal is a significant step towards achieving his vision of a stronger, more prosperous Indonesia.
A Key Test for Prabowo’s Administration
The success of Prabowo’s budget proposal will depend on a number of factors, including the country’s economic growth rate, inflation rate, and the performance of the rupiah. The administration’s ability to manage the economy and deliver on its growth targets will be closely watched by investors and analysts. If Prabowo’s administration can deliver on its promises, it will be a significant achievement, one that will have far-reaching implications for the country’s economic prospects.