2025 Draft State Budget: Transition and growth in focus for Indonesia

Jakarta (ANTARA) - The Indonesian government announced the Draft State Budget (RAPBN) for the 2025 fiscal year through the annual tradition of financial memorandum delivery on Friday.

The RAPBN focuses on two main themes: transition and sustainability. These themes align with the sustainability agenda promoted by President-elect Prabowo Subianto and Vice President-elect Gibran Rakabuming Raka, the eldest son of President Joko Widodo (Jokowi).

Jokowi's administration has also designed an RAPBN that facilitates a smoother government transition. He has allowed the incoming government to include its priority programs in the draft state budget.

This marks a departure from past practices, where the incumbent government typically excluded the successor's transition team from RAPBN preparation.

Growth amid stagnation

Jokowi's administration has set an economic growth target of 5.2 percent for next year, slightly higher than the current year's projection of 5.1 percent amid fears of global economic stagnation.

The International Monetary Fund (IMF) has projected global economic growth of 3.2 percent for 2024 and 2025, the same rate as in 2023.

In his speech during the 2025 RAPBN and Financial Memorandum Delivery at the House of Representatives (DPR) Plenary Session, Jokowi said that domestic demand will be the country's mainstay in supporting the economy.

He added that the strategy of relying on domestic demand is in line with the government's efforts to control inflation, create jobs, and distribute social assistance and subsidies to maintain people's purchasing power.

Statistics Indonesia (BPS) has recorded deflation in the last three months.

On the one hand, deflation could indicate sufficient food supplies in the market and stable prices. On the other hand, the consistency of deflation over the past few months has raised concerns about the weakening of people's purchasing power, which could dampen demand.

To address low demand, the government will focus on increasing export-oriented and high-value products with the support of fiscal incentives.

In line with this, Finance Minister Sri Mulyani Indrawati has assured that the social protection budget is on target for all levels of society.

Macroeconomic assumptions

Jokowi's administration has made several macroeconomic assumptions in devising the budget, some of which are within the range agreed upon during a discussion with the DPR, while other assumptions exceed it.

The assumption that exceeds the agreed limit pertains to the rupiah exchange rate. Jokowi announced that the rupiah exchange rate is estimated to hover at around Rp16,100 per US dollar, higher than the previous projection of Rp15,300–Rp15,900 per US dollar.

The Financial System Stability Committee (KSSK) has expressed optimism that the rupiah will strengthen steadily, in line with attractive yields, controlled inflation, and strong economic growth in Indonesia.

Meanwhile, the yield on 10-year government bonds is estimated at 7.1 percent, which is still within the agreed range of 6.9–7.2 percent.

The assumptions also include an estimated Indonesian Crude Price (ICP) of US$82 per barrel and projected liftings of oil at 600,000 barrels per day and natural gas at 1,005 million barrels of oil equivalent per day.

Fiscal deficit

One of the highlights of the RAPBN is the widening fiscal deficit for 2025, compared with the 2024 target. The 2024 state budget deficit is 2.29 percent, while the 2025 target is set at 2.53 percent.

Meanwhile, state revenue is targeted to reach Rp2,996.9 trillion (around US$190.92 billion), comprising tax revenue of Rp2,490.9 trillion and non-tax revenue of Rp505.4 trillion.

Sustainable tax reform and efforts to maintain the investment climate will be bolstered to achieve the revenue target.

State expenditure will be directed toward supporting the government's priority programs to provide a multiplier effect.

The two main programs of the upcoming government are specifically the development of Nusantara—the new capital city in East Kalimantan—and free nutritious meals for school students.

The free meal program marks a new approach to the transitional state budget, incorporating the next government's initiatives into the current fiscal design.

Notes for Prabowo's administration

Fiscal management is crucial to ensuring the nation's long-term sustainability.

Indonesia has maintained a positive image in the eyes of the global community. For instance, it succeeded in maintaining economic growth around 5 percent post-pandemic and reduced budget deficits to below 3 percent.

Baca juga: Four SOEs get globalrecognition: Minister ThohirBaca juga: Four SOEs get globalrecognition: Minister Thohir
Baca juga: President Jokowi launches Kusuma Bangsa Park in IKN Nusantara

Prabowo's administration must sustain this positive image. The transition period should be used to effectively learn fiscal strategies from the current government.

The next government must ensure wise and careful fiscal management to maintain the state budget's role as a "shock absorber."