Jakarta. Indonesia’s parliamentary budget committee is considering whether the country should loosen its long-standing 3% of gross domestic product (GDP) ceiling on the state budget deficit, as lawmakers debate a revision of the State Finances Law.

Mukhamad Misbakhun, chairman of the House of Representatives’ Commission XI, said Thursday that the deficit limit should not necessarily be treated as a rigid annual threshold if the government needs additional fiscal space to support economic growth.

“Is 3% really 'sacred'?” the Golkar Party politician said during a public hearing with economists in Jakarta. He argued that fiscal policy should be able to respond to weaker tax revenues, higher subsidies, and external economic pressures without requiring conditions as severe as the Covid-19 pandemic.

Indonesia’s 2003 State Finances Law sets a maximum budget deficit of 3% of GDP and limits government debt to 60% of GDP. Misbakhun said the 3% figure appears in the law’s explanatory section rather than directly in Article 12, arguing that the ongoing revision provides an opportunity to reassess how the ceiling should be applied.

He said fiscal policy should focus not only on the size of the deficit but also on the factors that produce it, particularly government revenue.

“A deficit is the impact of an equation,” Misbakhun said, arguing that policymakers should address inadequate revenue rather than focusing solely on the resulting deficit.

Misbakhun also proposed that the revised law establish clear conditions under which a larger deficit could be permitted. Such flexibility, he said, could be triggered by circumstances including weaker tax collections or rising subsidy costs caused by changes in energy prices and global economic conditions.

Economists Beg to Differ
Chaikal Nuryakin, head of the Institute for Economic and Social Research at the University of Indonesia (LPEM UI), suggested that the 3% threshold could instead be assessed over a medium-term period, allowing deficits to fluctuate from year to year while maintaining fiscal discipline over a longer horizon.

CORE Indonesia economist Dipo Satria Ramli, however, said the 3% limit should remain for now because government revenues remain relatively fragile. Any increase in borrowing, he said, would also need to take into account the government's ability to service debt and pay interest.

The debate comes as Indonesia seeks to maintain economic stimulus while preserving fiscal credibility. The government projects a 2026 budget deficit of about 2.85% of GDP, just below the current ceiling. Through August, the deficit stood at around 0.9% of GDP.

New Finance Minister Suahasil Nazara, appointed this week to replace Purbaya Yudhi Sadewa, has said President Prabowo Subianto instructed him to safeguard the health and credibility of state finances while ensuring the budget continues to support the government’s priority programs. The Finance Ministry has previously reiterated its commitment to keeping the deficit below 3% while using fiscal policy to support growth.

Add as a preferred source on Google +