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."