(Oct 9): Indonesia is tightening government spending towards year-end, ordering ministries and agencies to cut unspent travel allocations by 30% as higher oil prices and costly flagship programmes put pressure on the budget.
The budget deficit widened to 1.24% of gross domestic product (GDP) at the end of September, with Finance Minister Suahasil Nazara saying on Friday the government remains on track to meet its full-year outlook for a deficit of around 2.8% of GDP.
Higher oil prices, stronger domestic demand for subsidised fuel and liquified petrolueum gas, and a shift to monthly payments have pushed energy subsidy and compensation payments to 377 trillion rupiah (RM85.8 billion) as of end-September, up more than 50% from the same period last year.
Indonesia’s average realised crude price is expected to rise further from the current US$92 per barrel, already well above this year’s budget assumption of US$70, Suahasil said.
“And if it rises, then subsidies will also increase,” Suahasil said in a briefing. “All of this has a direct impact on the state budget, and we must certainly absorb these costs and ensure that payments are made.”
The spending curbs underscore the challenge facing the government as it funds programmes including free meals and village cooperatives while keeping the budget deficit below the legal ceiling of 3% of GDP.
The finance ministry said in a circular dated Oct 8 that the travel cuts apply to unspent allocations as of that date. Agencies must also defer spending on new vehicles, official housing and office renovations, prioritize virtual meetings and limit non-essential trips.
The measures aim to align government spending with development priorities while protecting public services and ensuring agencies meet planned targets, Sudarto, the ministry’s director general of state budget, said at the same briefing.
The government is also accelerating tax refunds for businesses that need cash flow, particularly labour-intensive industries and smaller firms, Suahasil said. The faster payouts are expected to moderate domestic value-added tax revenue as refunds are paid out more quickly.
Separately, the government is seeking new sources of revenue. Indonesia plans to introduce a levy on sugar-sweetened drinks in the second half of 2027, targeting revenue of 1.7 trillion rupiah, Djaka Budi Utama, the director general of customs and excise, said at the briefing. The rate and technical details are still being discussed.
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