Yogyakarta. The ASEAN+3 Macroeconomic Research Office (AMRO) urged Indonesia to shift toward more targeted subsidies as weak state revenue and rising fiscal pressures threaten to narrow the country’s fiscal space amid global uncertainty.

“Particular attention could be given to rationalizing broad-based subsidies toward more targeted subsidies through spending review and evaluation,” AMRO Deputy Group Head and Senior Economist Byunghoon Nam said during a session on ASEAN regional economic outlook and fiscal policy at Gadjah Mada University on Wednesday.

Nam said Indonesia’s relatively low revenue collection compared with regional peers has limited the government’s fiscal flexibility even as spending needs continue increasing.

“Indonesia’s revenue-to-GDP ratio is particularly low compared with both regional peers and global income peers,” he said.

AMRO data showed Indonesia’s revenue-to-GDP ratio averaged just 14% in 2015-2025, far below Malaysia’s roughly 20%, Thailand’s 21%, and China’s 27%.

According to AMRO, broader fiscal pressures across ASEAN+3 economies remain elevated as governments continue increasing spending to support growth, maintain social protection, and cushion external shocks.

Indonesia’s fiscal deficit narrowed from 4.57% of GDP in 2021 to 1.65% in 2023 before widening again to 2.29% in 2024 and 2.92% in 2025.

Nam said governments across the region introduced cash transfers, subsidies, tax relief, and loan guarantees to support households and businesses.

“Indonesia also implemented large-scale short-term targeted cash transfers to protect households’ purchasing power and inflationary pressure,” he said.

The sustained fiscal expansion has also pushed up public debt levels. AMRO data showed Indonesia’s debt-to-GDP ratio rose to around 40% in 2025 from roughly 30% before the pandemic. While still lower than Malaysia, Singapore, and Japan, the increase has raised debt servicing pressure as interest obligations continue climbing.

“In some cases, almost one-fifth of government revenue must be automatically paid for interest,” Nam said.

AMRO also warned that fiscal buffers have narrowed significantly after years of economic support measures, while uncertainty tied to trade tensions and volatile oil prices remains elevated.

“Oil price uncertainty has intensified more recently, surging since March this year,” Nam said. Brent crude recently traded near $97 per barrel, up sharply from around $70 in March as geopolitical tensions in the Middle East disrupted global energy markets.

AMRO also encouraged Indonesia to improve spending efficiency and strengthen tax administration through digitalization, including e-filing, e-invoicing, and stronger data-sharing systems across institutions.

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