Indonesia’s Finance Minister Sri Mulyani Indrawati announced in parliament on Monday that the country has revised its 2025 GDP growth forecast to 5.1% to 5.5%, down from the previous estimate of 5.3% to 5.6%.
This new growth outlook, bond yields and the rupiah exchange rate predictions will guide the government’s 2025 budget planning.
Outgoing President Joko Widodo will finalise the figures and present the 2025 budget to parliament in mid-August. Lawmakers will debate the budget in September before President Widodo’s successor, Prabowo Subianto, takes office in October.
The transition team for president-elect Prabowo is collaborating with the finance ministry to ensure the 2025 budget reflects his plans. Sri Mulyani confirmed that initiatives to improve nutrition for school children, a critical program of Prabowo, will be part of the 2025 fiscal plans, though details remain unspecified.
Analysts have raised concerns about the high cost of Prabowo’s campaign pledge to provide free meals for 83 million children, which could impact Indonesia’s fiscal discipline. The estimated first-year cost is $7.7 billion, with potential growth boosts of up to 2.6 percentage points by 2029.
Despite the reduced growth forecast, the government plans a 2025 budget deficit range of 2.45% to 2.82% of GDP, close to the previous estimate of 2.48% to 2.80%. This year’s budget deficit is 2.29% of GDP, compared to last year’s 1.65%.
The public debt-to-GDP ratio will remain between 37.98% and 38.71% next year, consistent with current levels. Maintaining healthy fiscal metrics remains crucial as Indonesia approaches market-based financing instead of bilateral or multilateral loans to address the budget gap.
Sri Mulyani warned, “A widening fiscal deficit can increase bond yields, pressure the rupiah exchange rate, raise domestic interest rates, and reduce private sector activity.”
Our Commentary:
Since 2014, Singapore has been Indonesia’s top source of foreign direct investment (FDI) Despite the revised GDP forecast, Indonesia continues to welcome foreign investments.
At ForBis Group, we note a substantial influx of foreign investors into Indonesia across sectors such as technology SaaS, property development, infrastructure, and manufacturing. Indonesia’s growing middle class fuels this trend, projected to reach 80% of the population by 2045. The expanding middle class drives demand for services and products, enhancing investment opportunities. Indonesia’s diverse workforce further attracts foreign investments.
For more information on how ForBis Group can help you enter the Indonesian market, please contact us.
