President Prabowo Subianto has introduced a policy to cut the national budget (APBN), aiming for an efficiency of 306 billion rupiah. This policy reduces funding for several institutions and ministries, potentially affecting various programs that may be canceled due to limited funding.
If not executed carefully, it could impact the national economy by lowering public purchasing power, creating investment uncertainty, limiting job creation, and reducing labor productivity.
Dr. Akhmad Akbar Susamto, a lecturer at UGM’s Faculty of Economics and Business (FEB UGM), warned the government about the macroeconomic effects of these budget cuts.
He emphasized that cutting funds, especially in productive sectors like essential infrastructure, education, and health, could hinder long-term economic growth.
“These sectors have a significant multiplier effect on the economy. If budget cuts are not done selectively, they can negatively affect public investment, job creation, and labor productivity,” Dr. Susamto said on Wednesday, Feb. 5, 2025.
In addition to economic growth, social stability and public welfare may also be impacted.
Social programs related to protection, subsidies, or assistance for vulnerable groups should not be the main targets for budget cuts.
“If cuts are too aggressive in these sectors, public purchasing power could decline, reducing domestic consumption and slowing economic recovery,” he explained.
Dr. Susamto noted that if the economic recovery slows, the sustainability of fiscal policy will heavily influence investor perceptions of investing in Indonesia.
Therefore, budget cuts should be accompanied by clear strategies to maintain economic stability.
“We must avoid creating uncertainty among businesses. Investors and the private sector need reassurance that the government remains committed to policies that support economic growth,” he stated.
Dr. Susamto agreed that the current budget cuts under the Prabowo-Gibran administration are necessary to maintain economic stability.
Budget reductions for fiscal efficiency are understandable, especially in light of the unhealthy fiscal situation due to large deficits and increased funding needs for priority programs like MBG and to avoid excessive pressure on government debt.
However, he cautioned that the policy must be implemented carefully to avoid reducing the national economy’s long-term capacity.
“What’s more important is ensuring that every rupiah of the available budget is used optimally to promote inclusive and sustainable economic growth,” he concluded.
Author: Jelita Agustine
Editor: Gusti Grehenson
Post-editor: Lintang
Photo: Media Indonesia