Subsidies Retained, OECD Projects RI Deficit to Hit 3%
JAKARTA, DDTCNews - The Organisation for Economic Co-operation and Development (OECD) projects that Indonesia's budget deficit this year will reach 3% of GDP, higher than the 2026 State Budget (APBN) target of 2.68% of GDP, or equivalent to IDR689.1 trillion.
The deficit is projected to touch 3% of GDP given that the government has decided to retain fuel subsidies amid a surge in oil prices caused by the conflict in the Middle East, whilst continuing to implement expenditure efficiencies.
"Higher oil prices are estimated to raise the budget deficit by 0.6% of GDP through increased fuel subsidy spending if the fuel price freeze is maintained. The government has signalled its intention to keep the deficit below the 3% ceiling of the fiscal rule, which will require offsetting measures of 0.3% of GDP," OECD wrote in the OECD Economic Outlook, June 2026 edition, as cited on Monday (8/6/2026).
Meanwhile, the budget deficit in 2027 is projected to reach 2.9% of GDP, following the expansion of the Free Nutritious Meals (makan bergizi gratis/MBG) programme and a decline in fuel subsidy costs.
As a result of the high deficits in 2026 and 2027, Indonesia's debt-to-GDP ratio in 2026 and 2027 is projected to come close to 41% of GDP.
In light of this situation, the OECD is urging the Indonesian government to provide targeted assistance exclusively to vulnerable households in order to maintain debt levels.
"Targeted transfers to low-income households, and to those reliant on energy for work, should be preferred to broad-based price controls," OECD wrote in its report.
According to the OECD, energy subsidies and compensation represent policies that burden the budget and tend to be poorly targeted.
The OECD is also urging the government to deliver the MBG programme in a more targeted manner and to tighten expenditure controls relating to that programme.
On another note, subsidy and compensation expenditure from January to May 2026 was recorded as having grown by 208.2% owing to rising oil prices and the depreciation of the rupiah exchange rate.
In detail, the realisation of subsidies and compensation up to May 2026 was recorded as having reached IDR203.7 trillion, or 45.6% of the subsidy and compensation ceiling under the 2026 State Budget (anggaran penerimaan dan belanja negara/APBN in Indonesian). (rig)