Indonesia’s ambitious plan to accelerate economic growth to 6% by 2027 while keeping its fiscal deficit at 2.4% of GDP is drawing skepticism from economists, who warn the targets may be unrealistic given current headwinds.
President Prabowo Subianto’s administration has set its sights on lifting growth from the roughly 5% average of the past decade, all while staying under the country’s 3% statutory deficit ceiling. The draft budget outlines eight priority areas, including food and energy self-sufficiency, but experts say the timeline is too compressed.
“They’re trying to achieve too much too quickly,” said Ashok Bhundia, deputy chief economist at the Institute of International Finance. He added that some targets are “a little bit overly ambitious on timelines,” and reaching 6% growth next year would likely require “an unanticipated commodity boom” to lift exports, revenues, and investment.
The push comes amid heightened scrutiny of Indonesia’s fiscal and monetary stability. Index provider MSCI has extended its review of whether to downgrade the country to frontier-market status until November, following concerns about spending programs like Prabowo’s free-meal initiative and the departure of respected Finance Minister Sri Mulyani. Worries about central-bank independence also intensified after Prabowo’s nephew, Thomas Djiwandono, became deputy governor of Bank Indonesia. The rupiah hit a record low against the dollar in June.
Gareth Leather, senior Asia economist at Capital Economics, described a jump to 6% as a “huge kind of leap.” While fiscal stimulus could help, he noted that the proposed budget suggests little appetite for loosening. Monetary easing might offer a “short term boost,” but Bank Indonesia operates independently of the government, and eroding that independence could come at the “cost of the country’s credibility,” Leather warned.
The budget’s assumptions are “completely unrealistic,” said Yanuar Rizky, senior economist at the Bright Institute. He pointed to the “fragile state” of purchasing power and a “sharp spike in online lending (pinjol)” — outstanding financing in that sector grew 25.88% year on year in June, according to Indonesia’s Financial Services Authority. Relying on tax revenues would be difficult when purchasing power is supported by “depleted savings and high-interest debt,” he added, and China’s slowdown would weigh on exports.
Still, economists see pathways to faster growth. Bhundia highlighted “encouraging” solar investment and its longer-term “multiplier effect,” while Leather called for a “focus on the supply side” through infrastructure spending and measures to attract foreign investment. Bhundia noted that a “slowing China is not inconsistent with additional investment in Indonesia” if the regulatory framework is right.
Risks remain, including the Iran conflict and its potential impact on oil prices. Indonesia has pledged to keep subsidized fuel prices unchanged through 2026, which could strain the budget if supply disruptions or worsening military confrontations push energy costs higher.
Radhika Rao, senior economist at DBS Bank, said the “scale of planned fiscal consolidation will require a sharp focus on revenue generation and debt management efforts.” Whether policymakers can balance growth ambitions with fiscal discipline is still an open question.
Source: www.cnbc.com — https://www.cnbc.com/2026/08/26/indonesia-economy-growth-ambitions-economists.html
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