Suahasil Nazara, Indonesia's newly appointed Finance Chief, possesses extensive experience that should enable him to effectively manage state spending and keep the budget deficit under the legal threshold of 3% of GDP. This sentiment was expressed by Mari Elka Pangestu, Deputy Chair of the National Economic Council, in an interview on BTV. Pangestu highlighted the government's dedication to improving spending efficiency, citing President Prabowo Subianto's endorsement of budget reductions for his signature free meals program.
The 2027 draft state budget further reinforces this commitment to fiscal consolidation, with a target deficit of 2.4% of GDP, a reduction from the 2026 outlook of 2.85%. This narrowing deficit is largely predicated on an increase in revenue, with tax revenue projected to grow by 12.1% to Rp 2.6 quadrillion ($146.5 billion), and overall taxation reaching Rp 2.9 quadrillion, a 10.5% increase from the 2026 outlook. Non-tax revenue is expected to decline as state-owned enterprise dividends are redirected to the state asset fund, Danantara, making the credibility of the narrower deficit heavily reliant on successful tax collection.
Indonesia's tax revenue in 2027 is projected to be around 9.3% of GDP, rising to roughly 10.4% when customs and excise are included, slightly above the 10.2% of GDP in the 2026 outlook. This is comparatively lower than some regional peers, with Thailand collecting about 13.1% of GDP in 2025, the Philippines 14.6%, and Malaysia 12.8%. The country also raises relatively little revenue from property taxation, at around 0.1-0.2% of GDP, compared to 0.4-0.6% in Thailand and the Philippines, and 1-2% in some other countries.
Despite the challenges, the move towards a narrower deficit is seen as crucial for strengthening fiscal buffers and creating more room for infrastructure and social programs. The new finance minister, Suahasil Nazara, faces the task of funding President Prabowo's ambitious growth agenda within increasingly tight fiscal constraints. His appointment has been viewed positively by some analysts, such as Qi Hang Tay of the Economist Intelligence Unit, who noted his internal pedigree and experience. However, Gareth Leather of Capital Economics suggested that more evidence of improved policymaking would be needed to conclude that Indonesia has truly turned a corner, particularly regarding the independence of the central bank.
