The Ministry of Finance on Thursday, January 8, unveiled a provisional look at the 2025 State Budget (APBN) realization and the newly ratified 2026 APBN. This pivotal announcement reveals a widening deficit for 2025, driven by revenue shortfalls and increased spending, while setting an ambitious, albeit challenging, fiscal trajectory for 2026.

Revenue Under Pressure: A Challenging Horizon

Indonesia’s state coffers faced headwinds in 2025, with national revenue declining by a stark 3.3% year-on-year (YoY). This figure represents approximately 92% of the targeted revenue for the year, indicating a significant gap in fiscal intake.

Tax Collections: The Core Challenge

The primary culprit for this revenue slump was a softened performance in tax collection. Tax receipts, the lifeblood of state income, recorded a 0.7% YoY contraction, hitting only 88% of the 2025 APBN target. The Ministry of Finance attributed this moderation to a trifecta of factors:

• Commodity price moderation, which cooled export-related tax revenues.
• An uptick in tax refunds, spurred by policy relaxations and accelerated audit processes.
• Strategic fiscal policies designed to bolster public purchasing power and ensure business continuity amidst economic fluctuations.

Looking ahead, the 2026 APBN paints a more optimistic picture, projecting a robust 14.4% YoY increase in state revenue, signaling a determined push for fiscal recovery.

Expenditure Dynamics: Fueling Growth, Shifting Priorities

In contrast to revenue, state expenditure expanded, climbing by 2.7% YoY and reaching 95% of its 2025 target. This growth was not uniformly distributed across the government’s financial architecture.

Central vs. Regional Spending

The entire impetus for expenditure growth originated from the central government’s spending, which surged by 4.2% YoY. Conversely, transfers to regional governments experienced a contraction of 1.7% YoY. This trend appears set to continue, and even amplify, in the 2026 APBN, which forecasts a formidable 21% YoY rise in central government expenditure while projecting a substantial 18.4% YoY decrease in transfers to regions. This indicates a strategic shift towards centralized fiscal control and program execution.

Flagship Programs Driving Spending

A significant driver behind the 2025 expenditure growth was the robust realization of key government initiatives. A prominent example is the Free Nutritious Meal program, a crucial social safety net. By the close of 2025, this program had reached approximately 56.1 million beneficiaries, equating to 68% of its ambitious 82.9 million target. The program’s budget realization for 2025 stood at around IDR 52 trillion, representing roughly 73% of its IDR 71 trillion allocation. Such programs exemplify the government’s commitment to social welfare even as it navigates a complex fiscal environment.

The Deficit Dilemma: Navigating the 3% Threshold

The interplay between decelerating revenue and accelerating expenditure culminated in a notable widening of the 2025 state budget deficit.

2025 Deficit Reality

The 2025 APBN deficit settled at 2.92% of GDP, a figure uncomfortably close to the regulatory ceiling of 3% of GDP. This realization significantly surpassed the initial 2025 APBN target of 2.53% of GDP and the revised outlook of 2.78% of GDP. Furthermore, it marked a substantial expansion from the 2024 deficit, which stood at 2.29% of GDP. The widening deficit acts as a fiscal barometer, indicating increased government borrowing and a potential for greater debt accumulation if not managed judiciously.

The 2026 Path Forward

For the upcoming fiscal year, the 2026 APBN targets a reduced budget deficit of 2.68% of GDP. This strategic target signals the government’s intent to engage in a degree of fiscal consolidation, balancing the imperative for economic growth and public spending with the critical need for long-term financial sustainability. Navigating this fiscal tightrope demands astute policy-making to ensure economic resilience while maintaining investor confidence.