Is Indonesia returning to fiscal orthodoxy?

Indonesia may be returning to fiscal orthodoxy under the new finance minister, Suahasil Nazara, who was appointed to reassess the mounting expenditure commitments inherited from President Prabowo Subianto. Prabowo has long advocated for a more interventionist state in the economy, championing food and energy self-sufficiency, and an expanded role for state-owned enterprises. Suahasil, a former head of the Fiscal Policy Agency, brings a more cautious approach to fiscal management to the role.

However, the real test lies ahead when fiscal discipline collides with Prabowo's expansive political ambitions. The proposed 2027 budget projects a deficit of 2.4 percent of GDP, with revenue expected to rise by 6.8 percent against a 3.9 percent increase in expenditure. The assumption of 6 percent economic growth is critical to maintaining this target, which could become more challenging should growth or revenues falter.

Revenue mobilization remains a vulnerability, as Indonesia urgently needs a stronger tax base. While the 2026 budget allocated significant funds to free nutritious meals, energy security, and food security, Indonesia's tax take still lags significantly at roughly 10 percent of GDP. The success of Indonesia's fiscal strategy will depend on balancing Prabowo's ambitious goals with the need for macroeconomic stability.