Indonesia’s unaudited budget deficit for the 2024 fiscal year was reported at 2.29% of the country’s gross domestic product (GDP), according to data released by the finance ministry on Monday. The figure is smaller than the previously estimated 2.7% but reflects a noticeable increase from the 2023 budget deficit of 1.61% of GDP.
The revised numbers highlight Indonesia’s ongoing efforts to balance fiscal discipline with the need to stimulate growth and invest in infrastructure and social programs in Southeast Asia’s largest economy. While the smaller-than-expected gap in 2024 may signal better-than-anticipated fiscal management, the increase compared to 2023 underscores the challenges Indonesia faces as it navigates global economic uncertainty, fluctuating commodity prices, and rising development demands.
2024 Deficit Narrower Than Expected
The government’s earlier projection of a 2.7% deficit for 2024 was revised downward as revenue collection exceeded initial estimates and spending was managed more efficiently. Finance Minister Sri Mulyani Indrawati attributed the lower-than-expected deficit to stronger economic growth, higher tax compliance, and robust non-tax revenue, particularly from the natural resources sector.
“We have worked diligently to optimize revenue and improve spending efficiency. The 2.29% figure reflects our commitment to maintaining fiscal stability while addressing Indonesia’s development needs,” Sri Mulyani said in a press conference.
Indonesia’s 2024 budget was set against a backdrop of recovering global markets and rising domestic economic activity. The government had aimed to accelerate investment in infrastructure, education, and healthcare while simultaneously managing public debt and controlling inflation.
Comparison to 2023 Performance
In 2023, Indonesia recorded a significantly lower budget deficit of 1.61% of GDP. This achievement was largely attributed to a post-pandemic recovery that spurred economic activity and bolstered government revenue streams. The government had also exercised stringent fiscal discipline in 2023, leveraging a surge in commodity exports and favorable global trade conditions to keep spending in check.
However, 2024 brought new challenges. A moderation in global commodity prices, rising global interest rates, and the need for increased public spending contributed to the widening of the deficit compared to the previous year. The government emphasized that the increase was within manageable limits and aligned with long-term fiscal strategies.
Economic Context and Key Challenges
Indonesia, as Southeast Asia’s largest economy, is highly reliant on exports of natural resources like coal, palm oil, and nickel. While these sectors have provided a steady stream of revenue in recent years, they are also vulnerable to global price fluctuations.
The 2024 budget deficit reflects the dual challenge of maintaining growth while ensuring fiscal sustainability. Key economic headwinds included:
- Global Economic Uncertainty: Geopolitical tensions, supply chain disruptions, and inflationary pressures in major economies created ripple effects for Indonesia.
- Slowing Commodity Boom: Indonesia’s export revenues in 2024 were dampened by a softening in demand for key commodities.
- Rising Development Needs: Infrastructure development, poverty alleviation, and climate change mitigation remained high on the government’s agenda, necessitating increased spending.
Despite these challenges, Indonesia’s GDP growth in 2024 was estimated to remain robust at 5.1%, supported by strong domestic consumption and investment.
2025 Deficit Projection at 2.53% of GDP
Looking ahead, the government has forecast a budget deficit of 2.53% of GDP for 2025. This slight increase compared to 2024 reflects planned investments in key sectors to drive economic transformation.
The 2025 budget will focus on several strategic priorities:
- Energy Transition: Investments in renewable energy projects to reduce reliance on fossil fuels and meet Indonesia’s climate targets.
- Human Capital Development: Increased funding for education and healthcare to enhance workforce productivity and improve living standards.
- Infrastructure Expansion: Continuing the development of roads, ports, and digital infrastructure to attract foreign investment and boost regional connectivity.
Sri Mulyani acknowledged that managing the 2025 budget would require careful planning to strike a balance between fiscal discipline and economic growth. “Our fiscal policy is designed to be countercyclical, supporting the economy in times of need while ensuring long-term sustainability,” she said.
Revenue and Spending Breakdown
In 2024, Indonesia’s revenue collection exceeded expectations, driven by:
- Stronger Tax Compliance: Tax reforms and digitalization efforts improved compliance and reduced evasion.
- Non-Tax Revenue Growth: Higher royalties and dividends from state-owned enterprises and natural resource sectors.
On the spending side, the government prioritized programs with high economic and social impact, including:
- Subsidies to stabilize energy prices for households.
- Direct cash assistance for low-income families to cushion the impact of inflation.
- Investments in disaster preparedness and climate resilience projects.
Market and Expert Reactions
Financial markets reacted positively to the unaudited 2024 deficit figures, with the Indonesian rupiah showing modest gains against the US dollar on Monday. Analysts noted that the smaller-than-expected deficit would boost investor confidence in Indonesia’s fiscal management.
“Indonesia continues to demonstrate prudent fiscal policies, which are critical for maintaining macroeconomic stability and attracting foreign investment,” said Bank Mandiri economist Andry Asmoro.
However, some experts cautioned that rising deficits in the coming years could pose risks if not accompanied by strong economic growth. “Indonesia must remain vigilant about external risks, including a potential slowdown in global trade and higher borrowing costs,” said Fauzi Ichsan, a senior economist and former central banker.
Government’s Fiscal Policy Strategy
Indonesia’s fiscal policy framework is anchored in a law mandating that the budget deficit should not exceed 3% of GDP. The government temporarily waived this rule during the COVID-19 pandemic to allow for increased spending but reinstated it in 2023 as economic conditions normalized.
The 2024 and 2025 budgets demonstrate the government’s commitment to keeping deficits below the 3% threshold, even as it addresses ambitious development goals. “We are focused on fiscal health, but we will not shy away from necessary spending to achieve our vision of a prosperous Indonesia,” Sri Mulyani emphasized.
