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• 2025 State Budget: Narrowing Deficit, But Due to Spending Delays

2025 State Budget: Narrowing Deficit, But Due to Spending Delays

The projected 2025 state budget deficit is now estimated at 2.3%–2.6% of GDP, slightly lower than the government's outlook of 2.78%.
However, this tightening is largely driven by slower spending execution, rather than strengthening government revenues.

Government Revenues Still Haven't Recovered
Through July, revenues reached only Rp1.863 trillion (65% of target) — down 7.2% YoY.
This decline stems mainly from:
- Lower commodity prices,
- Economic growth softer than budget assumptions,
- Large taxpayer collections far below target (only Rp8T of Rp20T).

This situation leaves fiscal space dependent on spending restraint, not expansion.

Spending Execution Stalled Across Many Levels
Several spending indicators show concurrent slowdown:
- TKDD execution at only 71.23% through mid-November,
- A number of ministries returned Rp3.5T in unspent budget allocations,
- Many local transfer funds remain unutilised in regional budgets.

Slow spending execution dampens the fiscal multiplier effect, particularly in the second half of the year, when historically government has played a significant role in supporting economic activity.

Deficit Projection: Smaller, But With Caveats
Economists estimate the year-end deficit at Rp550T–Rp620T or 2.3%–2.6% of GDP.
On the surface, this figure appears positive — the fiscal position is maintained and the risk of deficit widening is relatively small.

However, context matters:
the deficit is shrinking because of underperforming spending, not because of strong revenue collection.

Macroeconomic Implications Ahead
The combination of subdued revenues and delayed spending suggests fiscal support to the economy is likely to be weaker than usual.
This may:
- Restrain domestic demand momentum,
- Slow the pace of some public projects,
- And put pressure on sectors dependent on government procurement.

Looking ahead to 2026, the effectiveness of budget execution will be a key factor in maintaining growth momentum, particularly as private consumption and investment move more cautiously.