Between 2020 and 2024, Indonesia recorded a budget deficit totaling IDR 3,192 trillion, averaging IDR 638 trillion per year. With a tax ratio that has stagnated, estimated at just 10.07% of GDP in 2024, the government’s fiscal space is becoming increasingly constrained.
According to estimates from the National Development Planning Agency (Bappenas), national investment needs for the 2025–2029 period are expected to reach IDR 35,400 trillion. However, the government is projected to contribute only around 8.4% to 10.1% of this total need.
Amid limited revenue and growing expenditure demands, effective management of the budget deficit is essential. As fiscal space narrows and financing is not channeled productively, the national investment target of IDR 7,500 trillion by 2026 risks becoming a burden that could undermine the foundations of long-term development.
Dr. Rijadh Djatu Winardi, a lecturer at the Faculty of Economics and Business at Universitas Gadjah Mada (FEB UGM), emphasized that the budget deficit should not be viewed as inherently negative; it depends on how it is managed.
According to Dr. Winardi, debt allows the state to remain resilient during crises, finance essential infrastructure, and foster long-term social equity.
“National debt is an instrument, not a threat. When managed wisely, transparently, and productively, it becomes a development tool and not a burden,” the Dr. stated on Thursday (Jul. 10) at the UGM campus.
Indonesia’s government debt ratio remains relatively manageable. As of the end of July 2024, it stood at 38.68% of GDP, well below the statutory ceiling of 60% set by Law No. 17 of 2003. Projections for 2025 also indicate a stable range of 37.82% to 38.71%.
However, Dr. Winardi cautioned that a low debt ratio alone is not a sufficient indicator of sound fiscal policy.
“Fiscal risks still exist and must be anticipated to avoid falling into a cycle of unproductive debt. The key is to ensure that every rupiah borrowed is directed toward capital expenditures, not routine spending,” he stressed.
Dr. Winardi warned that the risk of debt dependence is growing and could limit the country’s ability to finance productive spending if not addressed early.
To mitigate long-term risks, he emphasized the importance of enforcing a disciplined fiscal rule, keeping the deficit under 3% of GDP, except in emergencies such as pandemics or recessions.
He also called for evaluating the quality of government spending to ensure financing is not only large but also impactful.
“Every rupiah must generate a multiplier effect on economic growth. If the budget is consumed only by routine expenditures or symbolic programs, we’re not truly building the future,” Dr. Winardi said.
To address financing challenges, he recommended that the government look beyond conventional debt and maximize non-debt financing institutions such as State-owned Enterprises (BUMN) that can directly invest in strategic projects, Public Service Agencies (BLU) which have financial flexibility to support public services, Special Mission Vehicles (SMVs) tasked with infrastructure financing, and the Sovereign Wealth Fund (LPI), which can attract long-term foreign capital without adding to the national debt.
According to Dr. Winardi, these four entities must work in synergy to build a strong, diversified, and sustainable financing ecosystem.
He also emphasized the importance of spending efficiency as a cornerstone of fiscal sustainability. Using the large-scale Free Nutritious Meals program as an example, he called for thorough evaluations to assess the program’s efficiency and effectiveness.
He advocated for adopting result-based budgeting as a new national standard.
“Every rupiah must add value. Otherwise, we will continue running high deficits with little tangible benefit to society,” he added.
Dr. Winardi further underscored the need to broaden national revenue sources as part of a sustainable fiscal strategy. Following the establishment of the Danantara wealth fund, he urged the government to prepare for a potential decline in BUMN dividend contributions by optimizing non-tax state revenue (PNBP) and improving governance in natural resource sectors.
Public participation in fiscal oversight is equally critical.
“Budget transparency and public involvement will enhance the legitimacy of our tax and fiscal systems. When people feel they have a say, compliance will follow naturally,” he said.
With careful, innovative, and disciplined deficit management, coupled with the full optimization of all available fiscal instruments, Indonesia is well-positioned to maintain fiscal credibility while pursuing its ambitious IDR 7,500 trillion investment target.
“The challenges are significant, but not insurmountable, provided we ensure strong governance and consistent policy direction,” Dr. Winardi concluded.
Author: Triya Andriyani
Post-editor: Anisa Nurliana
Illustration: The Jakarta Post