March 16, 2026 | 12:57 pm
TEMPO.CO, Jakarta - The option to widen the budget deficit has emerged after Indonesian Coordinating Minister for the Economy Airlangga Hartarto revealed a deficit scenario stemming from the conflict in the Middle East. Awalil Rizky, a senior economist from Bright Institute, stated that this plan carries the risk of increasing debt financing and lowering the assessment level by international rating agencies.
The State Budget's Financial Note has presented fiscal risk factors with various assumptions, ranging from low-scale or unlikely to occur (score 2) to significant impact or high likelihood (score 5). However, according to Awalil, the conflict in Iran has elevated the score to 4 and 5, with difficult-to-reduce ramifications.
"If the option to widen the deficit is taken, it will result in financing exceeding the State Budget. The impact is almost certain to be high or very high," stated Awalil in an official statement quoted on Monday, March 16, 2026.
The law dictates that the State Budget (APBN) deficit cap must not exceed 3 percent of Gross Domestic Product (GDP). Awalil believes that widening the deficit will boost the debt-to-GDP ratio, the debt payment burden ratio, and the debt interest payment ratio.
This year's allocation of debt interest amounts to Rp599 trillion and is likely to be surpassed. Considering the rise in government bond yields and currency depreciation due to foreign-denominated debt, "Another risk looming is the downgrade of Indonesia's rating level," said Awalil.
Prior to the discourse on widening the deficit, two global rating agencies, Moody's and Fitch Ratings, had already highlighted fiscal policies becoming less prudent and high debt interest payment ratios. Amidst these assessments, both agencies also downgraded the state's debt securities prospects from stable to negative.
If the deficit widening is implemented and approved by the House of Representatives, other serious issues will arise. "Deficits must be tackled with increased debt financing, meaning the government needs to borrow more," expressed Awalil.
The latest data from the Directorate General of Financing and Risk Management (DJPPR) indicates that the government debt position as of December 31, 2025, reached Rp9,637.90 trillion. This figure surged compared to the first semester of 2025, when government debt was recorded at Rp9,138.05 trillion.
Meanwhile, the debt-to-GDP ratio as of December 31, 2025, stood at 40.46 percent. This figure also increased compared to the first semester of the previous year, which was recorded at 39.86 percent of GDP.
Awalil stated that President Prabowo Subianto's desire to be more frugal, if consistently executed, would certainly help address some issues. However, it is unlikely to be sufficient for the current situation.
Another available option with more measured risks is to cut major priority programs. These include the Free Nutritious Meal (MBG) program, the Red and White Village Cooperatives (Kopdes), spending on main weapon systems or alutsista, and special material and equipment or almatpus. If necessary, government bureaucracy can be restructured, such as reducing the number of ministries/agencies.
Regardless of the benefits of these programs, preventing further deterioration is currently prioritized. "Increasing the deficit and borrowing on a large scale is not the right choice," he stated.
Previously, in a cabinet meeting at the State Palace in Jakarta, Airlangga Hartarto presented three worst-case deficit scenarios of the State Budget to President Prabowo Subianto. According to his calculations, in a conflict situation, the State Budget could incur a deficit of 3.18 to 4.06 percent of Gross Domestic Product (GDP).
"This means that with these various scenarios, maintaining a 3 percent deficit is difficult for us unless we are willing to cut spending and suppress (economic) growth," said Airlangga on Friday, March 13, 2026, as quoted from the Presidential Secretariat's YouTube channel.
Read: Rupiah Slides to 16,970 as Iran-Israel War Uncertainty Rattles Markets
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