Jakarta. Indonesia’s finance chief signaled a shift to crisis footing in managing state finances, as rising global oil prices and tightening fiscal space test the government’s commitment to keep its budget deficit within the legal ceiling.

Finance Minister Purbaya Yudhi Sadewa said the government has entered a “survival mode,” warning that there is no longer room for poorly executed policies or inefficiencies, particularly in revenue collection.

“Survival mode means we cannot afford to play around anymore. If tax collection is handled carelessly, it could be disastrous,” Purbaya said at a media briefing in Jakarta on Friday.

The remarks reflect growing urgency within Southeast Asia’s largest economy, where fiscal discipline is being tested by external shocks, including a sharp rally in oil prices. The 2026 state budget was drafted based on a crude oil assumption of $70 per barrel, but benchmark Brent crude climbed close to $100 in late March, driven by escalating geopolitical tensions in Iran.

The widening gap between assumptions and market reality threatens to inflate Indonesia’s already sizable energy subsidy bill and put pressure on public finances.

Under Law No. 17/2003 on State Finance, Indonesia caps its fiscal deficit at 3% of gross domestic product (GDP), a rule widely viewed as a cornerstone of its macroeconomic credibility. The country’s 2025 deficit reached Rp 695.1 trillion ($41.1 billion), or 2.92% of GDP — just below the legal ceiling.

For 2026, the government is targeting a narrower deficit of 2.68% of GDP as part of its fiscal consolidation strategy. However, early data points to rising strain. In the first quarter, the budget deficit stood at Rp 240.1 trillion, equivalent to 0.93% of GDP.

State revenues reached Rp 574.9 trillion, or 18.2% of the full-year target of Rp 3,153.6 trillion, while government spending totaled Rp 815 trillion, accounting for 21.2% of the Rp 3,842.7 trillion allocation.

Large policy commitments are also weighing on fiscal space. The flagship free nutritious meals progra, a key priority of President Prabowo Subianto, has been allocated Rp 335 trillion ($19.8 billion) this year, adding to spending pressures even as the government seeks to rein in the deficit.

Purbaya said the government would tighten oversight to ensure all programs are executed effectively. A presidential decree on accelerating national development will place key projects under the supervision of a dedicated task force.

“If programs are poorly executed, we will be outcompeted by other nations,” he said. “I will use all the authority I have to ensure programs under the finance ministry are properly monitored.”

Dispelling ‘Three-Month Budget’ Rumors
The minister also moved to push back against speculation that the state budget could only sustain government operations for a few months, calling such claims inaccurate and driven by negative sentiment.

“They said the budget would only last three months. That would mean we are running out by June or July, but that is not the case,” Purbaya said.

He attributed the narrative to miscommunication and “noise” that created a perception of imminent fiscal deterioration, adding that internal coordination has since been improved to avoid further misunderstandings.

Purbaya also clarified that several previously floated tax proposals, including levies targeting wealthy individuals or value-added tax on toll roads, are no longer on the government’s agenda. Instead, the focus has shifted to optimizing existing systems and minimizing leakages.

“It is better to fix what we already have and reduce leakages as much as possible,” he said.

Despite improvements in tax administration, Purbaya acknowledged that gaps remain. The ministry has stepped up internal oversight, including rotating personnel if irregularities are detected.

“There are still significant leakages and some misconduct. If we see unusual patterns in the data, we will act quickly, including reassigning staff,” he said.

He added that internal reporting systems will be strengthened to ensure that critical issues are escalated promptly.

Austerity Measures Return
To contain spending, the government has revived austerity measures first introduced in early 2025. These include restrictions on non-essential official travel and meetings, as well as broader cuts to operational expenditures across ministries and agencies.

Officials estimate that efficiency measures could generate savings of around Rp 80 trillion. Additional savings of Rp 40 trillion are expected from scaling back the free meals program from six days to five per week.

The government is also considering a weekly work-from-home (WFH) day for both public and private sector employees to reduce fuel consumption, reflecting Indonesia’s continued reliance on imported energy.

Energy subsidies remain a major fiscal burden, with Rp 210 trillion allocated this year to support gasoline, diesel and cooking gas prices. The government has pledged not to raise fuel prices despite rising global costs, a stance that could further increase subsidy spending if oil prices remain elevated.

Still, Purbaya sought to reassure markets, noting that international institutions continue to view Indonesia’s economic fundamentals positively. He cited favorable assessments from JPMorgan Chase, the Islamic Development Bank and S&P Global Ratings.

“Global institutions are not raising major concerns. Much of the negative sentiment comes from noise,” he said.

A director at Fitch Ratings told Reuters that Indonesia may have some room to temporarily breach its legal deficit ceiling without triggering an immediate downgrade, provided the move is clearly linked to short-term economic disruptions, such as the ongoing conflict in the Middle East.

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