The national budget approved by Indonesia’s parliament for 2023 is 3,061.2 trillion rupiah (approximately $200.73 billion), with a fiscal deficit projected at 598.2 trillion rupiah / 2.84% of the Gross Domestic Product (GDP).

What is the national budget and what is a fiscal deficit?

The national budget outlines a nation’s budget / spending plans for that particular year. A fiscal deficit refers to a situation where the government is spending more than it earns, also for that particular year.

Revenue Sources and How Is The Deficit Financed?

The Indonesian government has several revenue sources, not limited to the following; but most of it comes from tax revenue and profits generated by government-owned enterprises. Since the government is spending more than it earns, it has to finance the deficit by taking on debt. This can be done by issuing bonds.

When the government issues bonds, they’re essentially borrowing money from investors both locally and abroad, promising to pay them back with additional interest. Such investors can vary from major institutions to normal citizens wanting to earn additional money on their savings. Currently, Indonesian government bonds are offering anywhere around 5-8% depending on its maturity. This is especially lucrative for investors having lower risk profiles and major institutions, considering the performance of the IHSG, an index that tracks the overall Indonesian stock market, yielding only 16% in the past 5 years.

Why Did It Take So Long For Indonesia to ‘Enter’ A Deficit?

Recently, Indonesia’s revenue figures have exceeded expectations. As of 31 October 2023, the Indonesian government has successfully collected 2,240.1 Trillion Rupiah in revenue, achieving 90,9% of its target. On the other hand, expenditure is currently at 2,240.8 Trillion Rupiah which is only 73,2% of the targeted amount. Higher than expected revenue particularly in taxes and cautious spending explains why Indonesia was able to maintain a budget surplus for 9 months.

Commitment to Education and Development

Indonesia’s national budget has been on a deficit for the past few years mainly due to significant spending increases on infrastructure, defense and underdeveloped/rural areas. This is done in order to stimulate economic growth and promote shared prosperity within Indonesia. Currently, Jawa Island still dominates Indonesia’s economic output, contributing more than 55% to the Indonesian GDP and this has resulted to income inequality for Indonesians living on the other major islands such as Kalimantan, Sumatra, Sulawesi and especially Papua.

On that note, Indonesia has also tremendously increased its spending on education for the greater good of the nation in the long run. Without education and competitive human capital, shared prosperity and development, Indonesia will not be able to realize its 2045 ‘Indonesia Maju’ Vision, aiming to transform Indonesia into a developed country and the world’s 5th largest Economy.

Conclusion (Is A Deficit Good? For Now, Yes.)

To sum up, Indonesia’s stance on the national budget by taking on a deficit is deemed safe as long as it’s not excessive and debt levels are managed properly and kept to a limit. For this reason, the Indonesian Parliament has legislated a law to control the maximum debt Indonesia can take on, capping it at 60% of the GDP. Keep in mind, spending is strategic and targeted towards fostering long-term growth, attempting to fulfill the ambitious 2045 Vision, Indonesia is not running a deficit carelessly.

The government’s careful management of debt levels and commitment to sustainable and equitable economic growth will definitely yield to a stronger, more prosperous and harmonious Indonesia for the next generation.