Indonesia: Expansionary stance with narrowing buffer – Standard Chartered

Standard Chartered’s Aldian Taloputra assesses Indonesia’s 2027 fiscal plans, noting a targeted deficit of 2.4% of GDP versus 2.9% in 2026. The bank maintains its own forecast of a 2.9%-of-GDP deficit, citing ambitious revenue assumptions and potential tax shortfalls. Despite a narrowing buffer, the deficit is still expected to remain below the 3% threshold.

Fiscal deficit seen below 3 percent

"The 2027 budget aims to narrow the fiscal deficit to 2.4% of GDP (from 2.9% targeted in 2026). Fiscal policy remains focused on strengthening the food, energy and education sectors as well as defence, while also restructuring SOE assets and attracting private-sector investment in the priority downstream and renewable sectors."

"After already strong tax revenue growth of 21% targeted in 2026, a second straight year of double-digit growth of 12% in 2027 looks ambitious to us."

"We maintain our 2027 fiscal deficit forecast at 2.9% of GDP, as we see risk of a tax revenue shortfall from lower commodity prices (we forecast average Brent crude at USD 75/bbl in 2027, versus USD 89/bbl YTD in 2026); a higher tax revenue base effect given slower tax restitution this year; and uneven growth drivers that may remain reliant on government support."

"Despite narrowing, we think the fiscal buffer is adequate to keep the fiscal deficit below the 3%-of-GDP threshold."

"We think financing needs will be larger in 2027, despite the narrower fiscal deficit target, due to higher debt maturities."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)