By Eko B. Supriyanto, Editor-in-Chief of Infobank Media Group
Don’t bite off more than you can chew. Let’s start by asking the simplest question in life—if your income is barely enough to get by, is it possible to keep spending? The answer is clear: no.
However, in a country’s political economy, that answer often becomes blurred. We are now faced with discussions about expanding the State Budget (APBN) deficit beyond 3 percent. The worst-case scenario even mentions a figure of 4.06 percent.
The question is, if Indonesia’s economy is doing just fine—as Finance Minister Purbaya Yudhi Sadewa claims, blaming “TikTok economists” for misreading data and urging them to study economics again—why expand the APBN deficit? If there’s plenty of money in the APBN coffers, as Purbaya says, why expand the deficit at all?
Finance Minister Purbaya stood firm at the Palace last week. With the manufacturing PMI data at 53.8 in hand, Purbaya vehemently denied that Indonesia’s economy is heading toward a recession.
“Some rather odd economists,” he said, dismissing those who see purchasing power eroding as nonsense-spouters.
Car sales rose 12.2 percent, retail grew 6.9 percent, and consumer confidence stood at 125.2. All indicators, he said, point to acceleration.
The data isn’t wrong. But something is off when examining the Manufacturing PMI data. Many economists contacted actually want to ask cautiously: Mr. Finance Minister, are you sure those numbers are honestly reflecting reality?
Let’s take a look at this charade known as the Purchasing Managers’ Index (PMI).
In April 2024, Indonesia’s manufacturing PMI plummeted from 52.9 to 48.9. It then rose again ahead of Christmas and New Year’s, reaching 51.2 in December 2024. January 2025 remained in expansionary territory at 51.9, February surged to 53.6, and March held steady.
Once Eid al-Fitr was over, April 2025 plummeted to 46.7—a record low. Then the cycle repeats: November 2025 rises, December expands, January 2026 hits 52.6, and February breaks the record at 53.8.
The pattern is as clear as a monotonous “dangdut” song. The PMI rises ahead of Christmas, New Year’s, and Eid al-Fitr. It drops sharply once the holidays are over.
This is not structural expansion. Clearly. It’s a seasonal circus.
Factories produce instant noodles, syrup, biscuits, and new clothing because people need souvenirs and treats. Not because factories are installing new machinery, hiring permanent workers, or exporting to global markets.
When Eid is over, orders dry up. The public’s real purchasing power—especially that of the squeezed middle class—isn’t strong enough to keep production running for 12 months.
And look at what happens after Eid in 2024 and 2025? The PMI plummets into contraction. The same is likely to happen in April 2026.
Economists can bet on it: after this year’s Eid, the PMI will once again plummet below 50. Not because the economy suddenly fell ill, but because the economy is only vibrant during holidays.
Otherwise, things are sluggish. It’s just “Rojali” and “Rohana”—the “Rarely Buy” crowd and the “Just Asking” crowd.
They Say There’s Plenty of Money, So Why Is the Deficit Being Widened?
Another question arises: what will happen if the deficit swells to 5 percent by 2027? Meanwhile, populist programs like the Free Nutritious Meals (MBG) and the Merah Putih Village Cooperatives remain stagnant. And all this amid the harsh reality of a low tax ratio and a skyrocketing debt service ratio (DSR)?
From a political economy perspective, widening the deficit is not merely a mathematical calculation. Because behind the deficit figures lies a tug-of-war between long-term fiscal stability and short-term political popularity.
Especially when the “rice fields” in the nation’s granary—in this case, tax revenue—are scarce. Meanwhile, the “debt interest” that must be paid each year keeps growing.
Many people are asking why the 3 percent figure is treated as a “hard limit” in the State Finance Law.
This is a legacy of the 1998 crisis, when we learned that borrowing without limits would only lead this nation to an economic grave.
Jusuf Kalla also reminded us of this a few days ago. He said that if the deficit widens, debt installments and interest will balloon. If debt swells to 50 percent of the budget, that is extremely dangerous for the continuation
of development.
Indeed, Coordinating Minister for the Economy Airlangga Hartarto presented three scenarios, all of which exceed the 3 percent limit due to rising oil prices and the weakening of the rupiah.
In the worst-case scenario—with oil prices at $115 per barrel and an exchange rate of 17,500 rupiah per U.S. dollar—the deficit could widen to 4.06 percent.
The market is starting to get nervous. This is a warning sign. Clearly, this isn’t about the numbers, but about confidence.
Low Tax Ratio and High DSR
Before discussing a 5 percent deficit, it’s important to honestly assess the fundamental conditions.
The World Bank recently noted that the 2025 tax ratio is projected at 9.31 percent, down from 10 percent in 2024. And compared to 2014’s 13.75 percent, the gap is significant.
This means the government’s ability to collect taxes is declining year by year. The “rice” stock in the state granary is dwindling.
That is the Finance Minister’s responsibility. It’s not just about wasteful spending, but also about distinguishing between wants and needs.
On the other hand, the debt burden is growing heavier. The World Bank notes that the debt interest payment-to-revenue ratio will reach 20.5 percent by October 2025. This means that one-fifth of the country’s annual revenue is spent solely on paying debt interest, not the principal.
Economists at the Bright Institute warn that if the primary balance continues to run a deficit, the debt interest burden could potentially erode about a quarter of total state revenue. This is a highly vulnerable situation.
Now, consider a more extreme scenario: a 5 percent deficit in 2027. Not only will the debt interest burden consume a large portion of the state budget, but according to a discussion by the Infobank Institute, three major risks loom:
First, the risks of crowding out and macroeconomic instability. INDEF economist Tauhid Ahmad warns that if the government floods the market with government securities (SBN) to plug the deficit, banks and investors will prefer to buy these safe securities rather than extend credit to the real sector. This will make it difficult for the private sector to secure third-party funding.
Small and medium-sized enterprises, which form the backbone of the economy, will be stifled. Interest rates will rise, investment will fall, and new jobs will be hard to create. This is an irony amidst promises of equitable distribution.
Second, pressure on the exchange rate and capital outflows. CORE Indonesia economist Mohammad Faisal warns that a widening deficit could impact investment prospects, debt financing, a weakening rupiah, and the stock market—all of which have the potential to create macroeconomic instability.
If foreign investors perceive Indonesia as “playing around” with fiscal discipline, they will withdraw their capital. The result: prices of imported goods rise, logistics costs balloon, and inflation erodes the purchasing power of the working class.
Moreover, the World Bank notes that the middle class is already under pressure and prefers saving over spending. Inflation will only worsen the situation.
Third, the weakening of regional fundamentals and the threat to food self-sufficiency. What is rarely discussed is the fate of Regional Transfer Funds (TKD).
Jusuf Kalla pointed out that currently, the share of TKD is only about 17 percent. If the deficit swells and the central government has to cut costs, the first expenditures to be slashed are usually those whose direct impact is “invisible,” including regional infrastructure, agricultural irrigation, and public services in the regions.
IPB Professor Didin S. Damanhuri warned that reduced maintenance of irrigation channels could disrupt food self-sufficiency.
In fact, the food self-sufficiency program is highly dependent on good irrigation. If irrigation systems deteriorate and regional development weakens, we will merely be building castles in the air while the foundation on the ground crumbles.
The MBG and Merah Putih Village Cooperative Programs
Then, what about the MBG and the Merah Putih Village Cooperative? These are programs that are politically very strategic. However, from an economic perspective, these are
flexible costs that can be adjusted.
Economists from various universities joined the discussion and provided honest calculations.
Professor of Economics at Airlangga University, Rahma Gafmi, noted that officials’ statements promoting the narrative that the economy is doing fine contradict the discourse on widening the deficit. This indicates immense pressure on Indonesia’s state budget.
Didin S. Damanhuri argues that the MBG, which currently has a budget of Rp335 trillion, could be focused on regions with high rates of malnutrition. With a more targeted program, the MBG budget could be reduced to Rp40 trillion to Rp50 trillion.
The Merah Putih Village Cooperative, with a budget of Rp117 trillion, could be implemented selectively in villages with high potential that can drive the rural economy. In this way, the budget could also be reduced by hundreds of trillions of rupiah.
Noval Adib, a lecturer at Brawijaya University, emphasized that the MBG and Village Cooperative fall under the category of flexible costs because these are new programs whose outcomes are not yet evident.
Moreover, issues such as embezzlement, moral hazard, and questionable nutritional quality have come to light. No significant changes have been achieved after one year of implementation, despite the large budget.
Mohammad Faisal from CORE Indonesia also added that efficiency must be prioritized.
Budget refocusing and reallocation should also target several government priority programs. While improving implementation, the scale should also be reduced, so that savings from these budget items can be used to address needs or serve as a policy strategy to mitigate the impact of global pressures, including increasing energy subsidies.
Many economists are concerned that if the deficit is forced to 5 percent by 2027 to maintain this populist program without reforms, we will face an increasingly dire scenario.
Bright Institute economist Muhammad Andri Perdana warns that widening the deficit could trigger concerns among international rating agencies and increase the cost of government debt issuance.
The more government bonds are issued, the harder it is for bank interest rates to fall, as the yield on government bonds becomes the benchmark for minimum returns for investors.
The Debt Trap
President Prabowo himself, in an interview with Bloomberg, emphasized that he has no plans to exceed a 3 percent deficit unless Indonesia faces a major crisis such as a pandemic.
“That deficit limit is a good tool for disciplining ourselves,” he said. This is the right philosophy.
This philosophy teaches us to be self-reliant, to live within our means.
Widening the deficit beyond 3 percent—let alone up to 5 percent—amid a low tax ratio and high debt-service ratio is an easy path that seems tempting. But that path is a slippery slope that could lead to a crisis.
This article agrees with the economists urging the President to be bold. Re-evaluating massive programs, cutting wasteful spending, focusing the MBG on regions with high stunting rates, implementing Village Cooperatives selectively, and ensuring every rupiah of government spending is truly productive—these are the true marks of a leader’s courage.
Because ultimately, a healthy state budget is not one that is deficit-free, but one that is managed with discipline, honesty, and prioritizes the long-term interests of our children and grandchildren—not merely to maintain popularity today.
Amid geopolitical pressures and declining purchasing power, we have no choice but to tighten our belts and work harder. After all, today’s debt is a burden on future generations. And the current generation has no right to pass on the grave sin of a mounting debt burden to our children and grandchildren.
“Don’t bite off more than you can chew” is sound advice for Indonesia’s economy today. (*)
