Indonesia’s outgoing government recently presented a budget plan for 2025, which aims to narrow the deficit compared to the current year. The proposal, valued at 3,613.1 trillion rupiah ($230 billion), was crafted by the economic team of both outgoing President Joko Widodo and president-elect Prabowo Subianto. This projection indicates a deficit of 2.53% of the GDP for the next year, which is lower than the estimated deficit of 2.7% for the current year. It is evident that the focus is on maintaining structural reforms, a healthy fiscal policy, and fostering collaboration among fiscal, monetary, and finance policies, as conveyed by President Jokowi.
The financial community has been closely monitoring Prabowo’s first budget plan, apprehensive that he might veer away from stringent fiscal regulations after hinting at a willingness to incur more debt to reach a GDP growth target of 8%. However, the proposal clarifies that the new government intends to remain fiscally prudent, disregarding rumors of escalating the debt-to-GDP ratio to 50% in the following five years. This move is crucial for maintaining investor confidence, especially as it ensures the annual fiscal deficit remains below 3% of the GDP.
Economist Ryota Abe mentioned that while the budget plan aligns with expectations, the focus now shifts to the policies pursued by Prabowo’s chosen finance minister. The challenge lies in accelerating Indonesia’s GDP growth to 8% without compromising fiscal discipline or jeopardizing investor risk appetite. The projected GDP growth rate of 5.2% for 2025 seems attainable, given the expansionary measures outlined in the budget and anticipated monetary loosening. Moreover, the target inflation rate of around 2.5% aligns with the central bank’s objectives.
The budget proposal forecasts total revenues of 2,996.9 trillion rupiah for the next year, representing a 7% increase from the current outlook. To support revenue generation, a new excise tax on packaged sugary drinks is suggested. On the expenditure side, significant allocations are made towards infrastructure, including the ongoing development of Indonesia’s new capital city. Additionally, the budget outlines plans to reform the government’s energy subsidy policy, transitioning from universal subsidies to targeted assistance for specific beneficiaries.
Indonesia’s 2025 budget plan underscores a commitment to fiscal discipline, sustainable economic growth, and prudent financial management under new leadership. The emphasis on structural reforms, revenue diversification, and strategic spending allocations bodes well for the country’s economic trajectory in the coming years. It is imperative for the incoming government to uphold these principles and collaborate effectively with key stakeholders to ensure the realization of these objectives.
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