Jakarta, Indonesia – The Indonesian Ministry of Finance (MoF) announced on Friday, October 9th, 2026, that the nation’s state budget deficit for the first nine months of 2026 reached IDR 319 trillion, equivalent to 1.24% of GDP. This figure represents a widening from the 0.93% recorded in August 2026 but remains tighter than the 1.55% deficit observed in September 2025. Simultaneously, the primary balance registered a robust surplus of IDR 125.5 trillion, a notable expansion from the IDR 20.5 trillion surplus in September 2025, although it slightly tempered from August’s IDR 154 trillion.

Revenue Resilience: A Tailwind for State Coffers

Robust Revenue Pillars: Tax and Non-Tax Receipts Exceed Expectations

Indonesia’s state revenue has proven remarkably resilient, surging by +25.5% year-on-year (YoY) through September 2026 to reach IDR 2,341.5 trillion. This represents 74.2% of the total 2026 state budget target, a testament to effective collection strategies and a recovering economic landscape. Tax revenue, a cornerstone of fiscal health, soared +24.1% YoY. This impressive growth is partly attributed to a favorable low-base effect following a -4.4% YoY contraction in the corresponding period of 2025. Domestic Value Added Tax (VAT) led this charge, skyrocketing +51.3% YoY, primarily due to strategic restitution management which the government indicates will be eased in the future.

Beyond taxes, Non-Tax State Revenue (PNBP) demonstrated exceptional performance, growing by +41.7% YoY to hit IDR 492.3 trillion, already surpassing the full-year 2026 state budget target. This surge was primarily fueled by a significant IDR 55 trillion surplus deposit from Bank Indonesia and enhanced regularization of forest areas. Looking ahead, the government targets to implement an excise tax on packaged sweetened beverages (MBDK) starting in the second half of 2027, projecting around IDR 1.7 trillion in new revenue, despite the specific rates and sugar content thresholds remaining undefined. This proactive measure signals a dual approach to fiscal strength: broadening the revenue base while promoting public health.

Expenditure Dynamics: Navigating the Swell of Subsidies

Escalating Expenditures: Subsidies and Social Safety Nets Drive Spending

While revenue streams swelled, state expenditure also saw a significant uptick, climbing +19% YoY. A major driver of this increase was the substantial outlay for subsidies and compensation, predominantly channeled to state-owned power utility PLN and oil and gas giant Pertamina. These payments reached IDR 376.8 trillion, an astonishing +54% YoY surge. This spike was directly linked to a +9.1% YoY increase in subsidized fuel volumes and a +15.7% YoY rise in fertilizer subsidies, reflecting the government’s commitment to shielding consumers and critical sectors from global price volatilities.

Social programs also featured prominently. The “Free Nutritious Meals” program recorded an expenditure of IDR 153.2 trillion. Notably, the budget for the National Nutrition Agency for 2026 was adjusted downwards from IDR 268 trillion to IDR 229 trillion. Furthermore, the government injected IDR 20 trillion into BPJS Kesehatan, the national health insurance agency, to mitigate its deficit, underscoring the ongoing challenge of universal healthcare funding. Food aid, a crucial component of the social safety net, also saw its extension until December 2026, reinforcing support for vulnerable populations.

Fiscal Discipline: The MoF’s Cost-Cutting Mandate

Navigating Fiscal Prudence: MoF Mandates Spending Freeze

In a strategic move to preserve fiscal health, Minister of Finance Suahasil Nazara has reportedly directed ministries and government agencies to implement significant cost-cutting measures. This directive, first reported by Reuters, mandates a 30% cut in remaining travel budgets and a freeze on non-essential expenditures until the close of 2026. This decisive action aims to anchor the fiscal deficit firmly below the statutory limit of 3% of GDP. All government entities are required to submit their budget cut proposals to the MoF by October 16, 2026. Critically, these austerity measures must not compromise public services and should consistently “remain focused on achieving presidential priority targets,” ensuring strategic objectives are not derailed by fiscal consolidation.

Economic Compass: Deficit Outlook Steady Amidst Headwinds

Deficit Outlook Holds Steady Amidst Macroeconomic Headwinds

Despite a confluence of external pressures, the government is holding firm on its 2026 fiscal deficit outlook of 2.85% of GDP. This resolve persists even as average Indonesian crude oil prices climbed to US$91.9 per barrel through September 2026, exceeding initial assumptions. Concurrently, oil and gas lifting performance lagged behind projections, and the rupiah’s average exchange rate against the US dollar hovered at IDR 17,449, weaker than the state budget’s assumption. These factors underscore the challenges in forecasting and managing the national balance sheet.

On the financing front, net State Sharia Securities (SBN) issuance has reached 62.2% of its target. The Ministry of Finance still plans 12 regular SBN auctions and 2 retail SBN issuances in the fourth quarter of 2026, offering diverse investment avenues. Furthermore, the MoF is keeping the option open for foreign currency SBN issuances, contingent on prevailing market conditions, showcasing a flexible debt management strategy. A word of caution from the MoF reveals a potential inflection point: the primary balance is projected to swing into deficit if the overall fiscal deficit surpasses the 2.26% of GDP threshold, a metric closely watched by analysts and investors alike.