Indonesia to keep budget gap <3% amid Middle East conflict: Reuters
TL;DR
Indonesia's government commits to keeping its budget deficit under 3% of GDP despite rising oil prices from Middle East tensions. It plans spending cuts, including to a free meals program, to manage risks and aims for 8% growth while addressing investor concerns.
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Indonesia to keep budget gap <3% amid Middle East conflict: Reuters
Indonesia to Keep Budget Deficit Below 3% Amid Middle East Conflict: Reuters
Indonesia’s government has pledged to maintain its fiscal deficit below 3% of GDP despite rising oil prices driven by escalating tensions in the Middle East, Finance Minister Purbaya Yudhi Sadewa confirmed on March 3, 2026. The minister emphasized contingency measures to adjust spending if global crude prices surge beyond projected levels, which could otherwise push the deficit to 3.6% of GDP.
The 2026 budget assumes a domestic crude oil price of $70 per barrel. However, with Brent crude recently hitting a 14-month high of $82.37 per barrel following air attacks on Iran, the finance ministry has modeled a worst-case scenario: if prices reach $90–$92 per barrel, the deficit could widen significantly. To mitigate this risk, the government plans to scale back expenditures deemed least critical to economic growth, including potential cuts to its $20 billion free meals program, which could save up to $6 billion.
Investor concerns have intensified following Moody's downgrade of Indonesia's credit rating outlook to "negative" in February, citing fiscal risks from expansive social programs. Fitch is also reviewing the country's fiscal health, with officials defending the newly established sovereign wealth fund, Danantara, stating its debt obligations are isolated from national finances.
Despite these challenges, Minister Purbaya remains confident in achieving President Prabowo Subianto's 8% GDP growth target while adhering to the 3% deficit ceiling. He argued that optimizing fiscal resources for growth is paramount, asserting "The deficit will only narrow over the next two years".
Indonesia's economy faces additional pressure as the rupiah and stock market have underperformed in 2026, with the benchmark index falling 7.5% amid broader regional volatility. The government's ability to balance ambitious growth goals with fiscal discipline will remain critical as geopolitical risks and oil price fluctuations persist.
