Jakarta. Indonesia's budget deficit is projected to widen to Rp 734 trillion ($40.5 billion), equivalent to 2.85% of gross domestic product (GDP), in 2026 as higher spending on disaster relief and energy subsidies pushes government expenditure beyond its original target, Finance Minister Suahasil Nazara said Friday.

The revised deficit forecast exceeds the initial target of Rp 689 trillion, or 2.68% of GDP, although it remains below Indonesia's statutory deficit ceiling of 3% of GDP.

Suahasil attributed the wider deficit to additional spending requirements toward the end of the fiscal year, particularly for disaster response, including forest and land fires, as well as increased energy subsidies and compensation payments.

He said some expenditures were not anticipated when the government prepared the 2026 state budget, prompting adjustments to revenue and financing plans.

"Spending is increasing, so revenue must also increase. We are raising the deficit, but we are arranging the financing to ensure it remains credible," Suahasil said in Jakarta.

According to the Finance Ministry's latest projections, government spending is expected to reach Rp 3.942 quadrillion by Dec. 31, an increase of Rp 99 trillion from the original budget allocation of Rp 3.843 quadrillion.

State revenue, meanwhile, is projected to rise by Rp 54 trillion, from the initial target of Rp 3.154 quadrillion to Rp 3.208 quadrillion.

The additional revenue is insufficient to offset the higher spending, resulting in a projected Rp 45 trillion increase in the budget deficit.

Disaster Relief and Energy Subsidies Drive Spending
Suahasil said disaster response was among the main drivers of the revised expenditure outlook, with additional funding needs estimated at about Rp 60 trillion.

The government has faced increased spending needs for disaster management, including efforts to combat forest and land fires.

Higher energy subsidies and compensation payments, particularly those related to fuel, have also contributed to the spending increase.

The additional allocations are intended to prevent higher energy costs from being passed on to households and businesses, helping protect purchasing power and contain pressure on the economy.

The government has maintained energy subsidies to limit increases in domestic fuel prices, although Suahasil emphasized the need to improve their distribution to ensure assistance reaches intended beneficiaries.

Despite the wider deficit, the government expects to remain within the 3% fiscal deficit ceiling.

Suahasil said the Finance Ministry would continue seeking additional revenue and adjusting financing arrangements to maintain fiscal credibility as spending pressures intensify toward the end of the year.

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