Indonesia orders cost-cutting measures to keep fiscal deficit in check, sources say

Indonesia's new finance minister has ordered ministries and ​agencies to slash remaining travel budgets by 30% and ​freeze non-essential spending for the rest of 2026, ‌according ​to a ministry document reviewed by Reuters, as it tries to stay within its legal fiscal deficit ceiling.

The directive, confirmed by two sources familiar with the matter, was ‌issued in a circular signed by Finance Minister Suahasil Nazara on Thursday. The finance ministry did not immediately respond to a request for confirmation.

Investors have been increasingly worried about Indonesia's fiscal sustainability under the administration of President Prabowo Subianto, who took office in 2024 ‌on a platform consisting of costly campaign promises. A major concern has been whether Prabowo will honour the legislated fiscal ‌deficit ceiling of 3% of GDP, which was introduced in 2003 in the aftermath of the Asian financial crisis in the late 1990s, which hit Indonesia hard.

Suahasil, named Prabowo's third finance minister in under two years last month, has promised to adhere to the fiscal limits. In the circular letter, ⁠Suahasil ordered ​civil servants to prioritise online ⁠meetings and to halt any procurement of new vehicles, as well as the construction or renovation of official residences and buildings.

"This is to keep the ⁠deficit below 3% of GDP," one of the sources told Reuters. The government's latest budget deficit estimate for 2026 was 2.85% of GDP, ​already higher than its initial target of 2.68%.

All government agencies must submit their budget cut proposals to the ⁠finance ministry no later than October 16, Suahasil said in the letter. Proposals must not include cuts that disrupt public services and the overall budget must "remain ⁠focused ​on achieving the president's priority outputs," he said.

Indonesia's ability to negotiate its tight fiscal space in 2026 has also been complicated by a spike in global energy prices, with ballooning energy subsidy payments in Southeast Asia's biggest economy likely ⁠to come due in the final quarter. Last year, President Prabowo Subianto slashed spending plans by $19 billion to keep the annual ⁠deficit below the legal ceiling, ⁠but still closed the year with arrears amounting to 2.81% of GDP, the highest in over two decades, with the exception of the pandemic years.

Last year's budget cuts forced regional ‌governments to hike local ‌taxes, triggeringprotests in many provinces.