President Prabowo Subianto presented his first full 2026 State Budget Draft (RAPBN) in a state address at the Parliament Complex on Aug. 15. Despite limited fiscal room, the budget outlines sweeping programs under eight priority agendas, anchored by a 5.4% economic growth target.

“This is the first state budget (APBN) that I have formulated as President of the Republic of Indonesia. The 2026 APBN architecture is the implementation of my vision and mission together with the Vice President, aimed at realizing a resilient, independent, and prosperous Indonesia,” Prabowo told lawmakers.

At the heart of Prabowo’s plan is the free nutritious meal program (MBG), set to become the largest public nutrition initiative in Indonesia’s history. Beneficiaries will rise from 20 million this year to nearly 83 million students, pregnant women, and toddlers in 2026, with an allocation of Rp 335 trillion.

Other flagship initiatives include free health checks (already reaching 17 million people), the revitalization of 13,000 schools and madrasahs, and the establishment of 80,000 “Merah Putih” cooperatives equipped with warehouses, cold storage, and truck fleets.

“We must no longer allow the people to borrow money from moneylenders. Bloodsuckers will be eliminated from Indonesia,” Prabowo said.

Beyond the flagship programs, the 2026 RAPBN is designed with eight main focuses: food security, energy security, a superior generation through MBG, quality education, equitable healthcare, a people’s economy based on cooperatives, total defense, and the acceleration of global investment.

For food security, the government has prepared IDR 164.4 trillion, including fertilizer subsidies of IDR 46.9 trillion and strengthening Bulog as a stock buffer. The target is self-sufficiency in rice and corn. “Stable prices, prosperous farmers, and thriving fishermen,” said Prabowo.

Energy receives an even larger allocation of IDR 402.4 trillion. The goal set is 100% electricity generation from new renewable energy within 10 years. “Indonesia must become a global pioneer in clean energy,” he emphasized.

Education and health are equally prioritized. The education budget is set at 20% of the state budget, IDR 757.8 trillion, the largest in history. Meanwhile, the health sector receives IDR 244 trillion, including coverage for health insurance for 96.8 million poor and vulnerable citizens.

Defense is also not neglected. Using historical rhetoric, Prabowo reminded how the Nusantara was once “oppressed by other nations” due to weak defense. Now, he asserts, Indonesia must no longer be a “cash cow.” Modernization of main weapon systems and strengthening strategic reserves are also on the priority agenda.

These eight major focuses are summarized by Finance Minister Sri Mulyani as a continuation of the President’s Asta Cita. “The 2026 state budget remains healthy and is maintained as an instrument to strengthen the foundation of a resilient, independent, and prosperous Indonesia,” said Mulyani.

Mulyani emphasized the state budget as an instrument of equity. “Spending by the central and regional governments must be aligned. Even if the central government makes the expenditure, the beneficiaries are the people in the regions through programs like PKH, KIP, staple food cards, healthcare services, public schools, free nutritious meals, and the Merah Putih cooperatives,” she said.

But Limited Fiscal Space

The scale of the agenda has also expanded the 2026 state budget posture. State expenditure is planned at Rp 3,786.5 trillion, while revenue is only Rp 3,147.7 trillion. The deficit reaches Rp 386.8 trillion, or 2.48% of GDP.

Mulyani explained that state revenue is projected to grow 9.8% compared to the previous year. This target is driven by increased tax revenue and optimization of customs and excise receipts, although Non-Tax State Revenue (PNBP) experiences a slight decline.

Tax revenue is targeted to reach Rp 2,357.7 trillion, which means it must grow by 13.5%. Meanwhile, revenue from customs and excise is estimated at Rp 334.3 trillion, an increase of 7.7%. On the other hand, PNBP (Non-Tax State Revenue) decreased by 4.7% to Rp 455 trillion, mainly due to no longer receiving dividends from state-owned enterprises (BUMN).

President Prabowo emphasized that this deficit is still within a safe limit. In fact, he aspires to fully close the deficit before 2028. This means that Prabowo is targeting a balanced budget. “I want, one day, to stand on this podium and announce that we have an APBN with no deficit at all,” he said.

The 2026 APBN deficit is set at 2.45% of GDP, lower than the 2.7% deficit target in 2025. Mulyani described this as a signal of fiscal discipline. On the other hand, experts warn that fiscal health cannot be measured by the deficit alone.

Deni Friawan, a researcher at the CSIS Department of Economics, also highlighted the direction of state spending, which he considers laden with political agendas. “The 2026 RAPBN is full of populist programs, such as free meals, 3 million houses, and the Merah Putih Cooperatives. The question is, with limited fiscal space, what will be sacrificed?” said Deni (18/8/2025).

He added that such policies could potentially cause a crowding-out effect, where private consumption and investment are pressured by dominant government spending. “Instead of strengthening economic stability, these policies could threaten it,” he said.

The centralization of the budget is also a concern. “There is a tendency for budget centralization in the central government, while the role of regional governments shrinks due to cuts in transfers to regions,” said Deni.

RAPBN 2026 data shows that central government spending is projected to increase by 17.8%, while transfers to regions are expected to fall by 24.8%. According to CSIS, this trend will widen the disparity in fiscal capacity across regions and risk hampering equitable development.

The state revenue target is also considered ambitious. The government targets a 10% increase, mainly from taxes at 13%. Yet, according to CSIS studies, the average tax increase has historically been around 5%–6%.

“Only 17 million out of 155 million workers pay taxes. Our tax base is still very narrow, making it difficult to enforce revenue increases in a short time,” said Deni. If the target is not met, the shortfall may be covered by new debt, which could further strain fiscal pressure.

State spending allocation also raises questions. “Capital expenditure continues to decrease, even though this determines long-term production capacity,” said Deni.

Conversely, defense and security spending actually jumps by 18% of the total 2026 RAPBN, surpassing social protection allocations. “Defense and security spending dominates 18% of the 2026 RAPBN, more than social protection. The question is, are we at war?” said Deni.

Subsidy issues are also highlighted by Deni. Energy subsidies increase by 14% and consume 66% of total subsidies. “Yet, energy subsidies are mostly enjoyed by the wealthy,” he said. CSIS suggests the government should change its approach, from subsidizing goods to providing direct transfers to recipients. “Subsidies should be given directly to people, not goods, to be more targeted,” he added.

Meanwhile, Riza A. Pujarama, an economist at the Institute for Development of Economics & Finance (Indef), pointed out the increasingly sharp trend of budget centralization in the 2026 RAPBN. Central government spending is projected to rise by 17.8%, while Transfers to Regions and Village Funds (TKDD) fall by 24.8%.

“In 2026, TKDD falls by up to Rp 214 trillion compared to the APBN 2025 outlook, with its composition shrinking from 24.49% to 17.17%, while central government spending is 82.83%. This is a consequence of the Job Creation Law, which reduces regional authority,” said Riza, an Indef economist.

The reduction of revenue sharing funds, special autonomy, and village funds limits fiscal capacity in more than 500 regencies/cities, which risks hindering equitable development. The impact on regional independence is also a serious concern.

Riza emphasized, “It may be that self-reliant regions no longer depend on transfer funds, but we need to examine more deeply to understand the impact of TKDD reductions on more than 500 regencies/cities in Indonesia.”

The dominance of central spending on routine expenditure, especially employee wages, goods, and debt interest payments, reinforces this dynamic. Productive capital expenditure, in contrast, declines from 8.74% in the 2026 RAPBN, limiting infrastructure investment that can drive long-term growth.

2026 Economic Growth Target

Not only allocating a massive budget, the government also presented several high basic macro assumptions for 2026. The economic growth target for 2026 is set at 5.4%, higher than the 5.2% target in the 2025 APBN, even though this year’s economic outlook is projected to grow around 4.7%–5.0%

Yose Rizal Damuri, Executive Director of the Centre for Strategic and International Studies (CSIS), assessed that the 5.4% growth target exceeds international agencies’ projections. The World Bank and IMF predict Indonesia’s economy in 2026 will grow only around 5%. “There is a gap between ambition and reality,” Yose said during a media briefing titled “RAPBN 2026: Weighing Political Promises Amid Fiscal Constraints,” held at the CSIS Auditorium on Monday morning (18/8/2025).

According to him, optimism is indeed necessary to mobilize the bureaucracy and the market, but the government must prepare contingency scenarios in case growth falls short. These include the effects of a slowdown in China, U.S. monetary tightening, and potential new trade wars.

“One of the main assumptions of RAPBN 2026 is 5.4 percent economic growth. However, if we look at the medium-term projections presented by Bappenas since 2019, the figures are much lower than that,” said Yose Rizal, Executive Director of CSIS.

Yose argued that such growth is difficult to achieve when Indonesia’s main export engines—commodities like CPO, coal, nickel, and gas—are weakening in terms of both price and demand. These commodities account for roughly 40% of national exports.

“If commodity prices fall, our economic growth tends to decline as well. So, the 5.4 percent growth assumption will be difficult to realize,” he said.

Responding to the 2026 economic growth target of 5.4%, Chairwoman of the Indonesian Employers Association (Apindo), Shinta W. Kamdani, stated that her organization would welcome it with optimism, accompanied by caution.

She emphasized that achieving this target depends heavily on several key factors, both in terms of macroeconomic conditions and improvements in the business climate.

“We view the 2026 economic growth target of 5.4% with optimism but remain cautious, especially given ongoing global uncertainties,” Shinta told SUAR (16/8/2025).

According to her, next year’s economic growth will depend on the speed of investment realization, the effectiveness of government priority spending, the resilience of people’s purchasing power, and the strengthening of the export sector.

She noted several challenges for businesses, such as the still-high cost of doing business in Indonesia, particularly in the energy, logistics, financing, and loan interest sectors. Additionally, compliance costs related to regulations and licensing remain a concern for Apindo.

Furthermore, she stressed that Indonesia needs to create a more conducive and competitive investment climate to attract foreign capital.

“We also highlight the need to improve productivity, which is one of the factors in accelerating investment realization,” she added.

"We also highlight the need to improve productivity, which is one of the factors in accelerating investment realization,” said Shinta.

Shinta Kamdani referred to the state budget (APBN) as the “DNA of national growth,” which determines the direction of the economy, development priorities, and resource distribution. However, she emphasized that a solid APBN will not be effective without strategic collaboration between the government and the private sector.

In terms of state revenue, Apindo supports tax reform through a data- and risk-based Coretax system. Yet, Shinta stressed the importance of legal certainty, transparency, and consistency. She also encouraged the government to explore new revenue potentials, such as the shadow economy or informal economy, which is estimated to account for around 23.8% of GDP.

“Amid various existing challenges, to achieve the growth target, Apindo welcomes synergy between the government and the business world through Indonesia Incorporated, where businesses continuously provide field-based data inputs that become the government’s focus,” Shinta stated.

Meanwhile, Teuku Riefky, a Macroeconomics and Financial Market Researcher at the Institute for Economic and Social Research, University of Indonesia (LPEM UI), opined that other assumptions underlying the 2026 state budget, such as inflation or exchange rates, are within reasonable ranges.

However, he projected a different outlook for economic growth and estimated that it would not reach 5.4% in 2026.
“I think the other [macro-economic assumptions] are fairly realistic, except for economic growth. In my view, next year’s growth will not reach 5.4 percent,” he explained to SUAR (15/8/2025).

He emphasized that strengthening the state budget posture should not rely on raising tax rates. He proposed a more innovative and structural strategy to increase state revenue, namely through the utilization of the National Identification Number (NIK) and job creation.

Riefky sees great potential in using NIK as a tool to track citizens’ income more accurately. With this system, the government can identify untapped tax potential, especially from the informal sector. “Using NIK to track citizens’ income and reduce informality costs can significantly affect state revenue,” he said.

Furthermore, Riefky stressed that increasing state revenue cannot stand alone. He argued that fiscal policy must be supported by broader structural policies, particularly to create jobs.
“There needs to be structural policies that promote job creation so as to increase people’s purchasing power,” he emphasized.

"There needs to be structural policies that promote job creation so as to increase people’s purchasing power,” Riefky emphasized.

According to him, job creation will automatically increase people’s income and purchasing power, thereby stimulating economic activity, which in turn will expand the tax base and overall state revenue.