The 2026 Financial Note and Draft State Budget (RAPBN) presented by President Prabowo Subianto in his State of the Nation Address at the Parliament Complex, Jakarta, Friday (15/8/2025), illustrated his big ambition to realize his vision and mission in 2026. In the midst of limited fiscal space, the president wants to immediately step on the gas to fulfill promises with eight priority agendas and economic growth of 5.4%.

"This is the first state budget that I formulated as President of the Republic of Indonesia. The architecture of the 2026 State Budget is the implementation of my vision and mission with the Vice President which is directed at realizing a resilient, independent and prosperous Indonesia," Prabowo said, opening his speech.

One of the highlights of Prabowo's speech was the flagship program that was described as his government's "new legacy". Among them, the free nutritious meal program (MBG) that has reached 20 million beneficiaries by 2025 and is targeted to expand to 82.9 million students, pregnant women, and toddlers by 2026. With an allocation of Rp335 trillion, the MBG will be the largest public nutrition program in Indonesia's history.

In addition, there is a free health check program that this year has been enjoyed by 17 million citizens, as well as the revitalization of more than 13,000 schools and madrasas. To support the village economy, the government established 80,000 Merah Putih Cooperatives with complete facilities: warehouses, cold storage, outlets, and distribution trucks.

"We must no longer allow people to borrow money from loan sharks. We will eliminate blood leeches from Indonesia," Prabowo said in a speech that was applauded by the legislators.

Beyond the flagship program, the 2026 Draft State Budget is designed with eight main focuses: food security, energy security, superior generation through MBG, quality education, equitable health, cooperative-based populist economy, universal people's defense, and accelerating global investment.

For food security, the government has prepared IDR 164.4 trillion, including IDR 46.9 trillion in fertilizer subsidies and strengthening Bulog as a stock buffer. The target is self-sufficiency in rice and corn. "Prices are stable, farmers are prosperous, fishermen are prosperous," Prabowo said.

Energy received an even larger allocation of IDR 402.4 trillion. The target is to use 100% of electricity generation from new renewable energy within 10 years. "Indonesia must be the world's clean energy pioneer," he said.

Education and health have also received attention. The education budget is set at 20% of the state budget, IDR 757.8 trillion, the largest in history. Meanwhile, the health sector received IDR 244 trillion, including to cover health insurance for 96.8 million poor and vulnerable people.

Defense was not left behind. With historical rhetoric, Prabowo reminded how the archipelago was once "crushed by other nations" due to weak defense. Now, he emphasized that Indonesia should no longer be a "cash cow". Modernizing the main weapon system (alutsista) and strengthening strategic reserves are also on the priority agenda.

These eight big 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," Ms Mulyani said.

Mulyani emphasized the state budget as an instrument of justice. "Central and regional spending must be one-way. Although it is the central government that spends, it is the people in the regions who enjoy it through the PKH program, KIP, basic food cards, health services, people's schools, free nutritious meals, and red and white cooperatives," she said.

But fiscally limited

The magnitude of the agenda makes the 2026 state budget posture also swell. State expenditure is designed at IDR 3,786.5 trillion, while revenue is only IDR 3,147.7 trillion. The deficit also reached IDR 386.8 trillion or 2.48% of GDP.

Mulyani explained that the projection of state revenue is targeted to grow 9.8% compared to the previous year. This target is driven by an increase in tax revenue and optimization of revenue from customs and excise, although non-tax state revenue (PNBP) has decreased slightly.

Revenue from taxes 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 to reach IDR 334.3 trillion, an increase of 7.7%.

On the other hand, non-tax state revenue (PNBP) decreased by 4.7% to IDR 455 trillion, mainly due to the elimination of SOE dividends.

Prabowo emphasized that this deficit is still within safe limits. In fact, he aspires to close the deficit completely before 2028. This means that Prabowo is targeting a balanced budget. "I want to one day stand on this podium and say that we managed to have a state budget that has no deficit at all," he said.

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

Deni Friawan, a researcher at the CSIS Department of Economics, also highlighted the direction of state spending, which is considered to be full of political agendas. "The 2026 Draft State Budget is full of populist programs, such as free meals, 3 million houses, and the Merah Putih Cooperative. The question is, with limited fiscal space, what will be sacrificed?" said Deni (18/8/2025).

He added that such a policy has the potential to cause a crowding out effect, where private consumption and investment are suppressed by the dominance of government spending. "Instead of strengthening economic stability, this policy could threaten it," he said.

Budget centralization is also a concern. "There is a tendency for budget centralization in the central government, while the role of local governments is shrinking due to cuts in transfers to the regions," Deni said.

Data from the 2026 Draft State Budget shows that central expenditure is projected to increase by 17.8%, while transfers to regions will actually decrease by 24.8%. According to CSIS, this trend will widen the gap in fiscal capacity between regions and risks hampering equitable development.

The state revenue target is also considered ambitious. The government is targeting a 10% increase, especially from taxes by 13%. In fact, according to the CSIS study, the average tax increase so far is only around 5%-6%.

"Only 17 million out of 155 million workers pay taxes. Our tax base is still very narrow, so it is difficult to force an increase in revenue in a short time," said Deni. If the target is not achieved, the shortfall could potentially be covered through new debt, which would exacerbate fiscal pressure.

The allocation of state spending also raises questions. "Capital expenditure continues to decline. In fact, this is what determines long-term production capacity," said Deni.

On the contrary, defense and security spending has jumped to 18% of the total 2026 Draft State Budget, surpassing the allocation for social protection. "Defense and security spending accounts for 18% of the 2026 Draft State Budget, more than social protection. The question is whether we are at war?" said Deni.

Deni also highlighted the issue of subsidies. Energy subsidies rose 14% and took up 66% of the total subsidy.

"In fact, energy subsidies are mostly enjoyed by the well-off," said Deni. CSIS thinks the government should change its approach, from subsidizing goods to going directly to the recipients. "Subsidies should be given directly to people, not to goods, to be more targeted," he said.

Meanwhile, Institute for Development of Economics & Finance (Indef) economist Riza A Pujarama highlighted the sharpening trend of budget centralization in the 2026 Draft State Budget. 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 fell to Rp214 trillion compared to the 2025 APBN outlook, its composition shrank from 24.49% to 17.17%, while central government spending was 82.83%. This is a consequence of the Job Creation Law that reduces regional authority," said Riza, an Indef economist.

Cuts to revenue-sharing, special autonomy, and village funds have squeezed the fiscal capacity of more than 500 districts/cities, which risks hampering equitable development. The impact on regional independence is also a serious concern.

Riza emphasized, "It may be the case that independent regions are no longer dependent on transfer funds, but it needs to be explored more deeply to understand the impact of TKDD reduction on more than 500 districts/cities in Indonesia."

The dominance of central government spending on routine expenditures, especially personnel expenditures, goods expenditures, and debt interest expenditures, reinforces this dynamic. Productive capital expenditure has actually shrunk, from 8.74% in the 2026 Draft State Budget, limiting infrastructure investment that can drive long-term growth.

Economic growth target 2026

Not only has the government budgeted for jumbo spending, it has also presented a number of high 2026 macro basic assumptions. The 2026 economic growth target is targeted to reach 5.4%, which is higher than the 2025 State Budget of 5.2%, even though this year's outlook is for the economy to grow in the range of 4.7%-5.0%.

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

According to him, optimism is necessary to drive the bureaucracy and the market, but the government must prepare a backup scenario if growth misses. For example, the impact of China's slowdown, US monetary tightening, and a new trade war.

"One of the main assumptions of the 2026 Draft State Budget is economic growth of 5.4 percent. In fact, if we look at the medium-term projections submitted by Bappenas since 2019, the figure is much lower than that," said Yose Rizal, Executive Director of CSIS.

Yose assessed that such growth is difficult to achieve when the main engines of Indonesia's exports, namely commodities such as CPO, coal, nickel, and gas, are weakening in terms of price and demand. These commodities account for around 40% of national exports.

"If commodity prices fall, our economic growth also tends to fall. So, the 5.4 percent growth assumption will be difficult to realize," he said.

Responding to the 2026 economic growth target of 5.4%, Chairman of the Indonesian Employers Association (Apindo) Shinta W Kamdani said that her party would welcome it optimistically accompanied by caution.

He emphasized that the achievement of this target is highly dependent on several key factors, both in terms of macroeconomics and improving the business climate.

"We view that the 2026 economic growth target of 5.4% needs to be viewed with optimism but still cautious, especially with global uncertainty," Shinta told SUAR (16/8/2025).

According to him, economic growth next year 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.

He gave several notes that are a challenge for businesses such as thecost of doing business in Indonesia is still high, especially in the energy sector, logistics, financing, and loan interest rates. In addition, the cost of compliance with regulations and licensing is also still a concern for Apindo.

Furthermore, he emphasized that Indonesia needs to create a more conducive and competitive investment climate in order to attract foreign capital.

"We also highlight the need to increase productivity, which is one of the factors in accelerating investment realization," he added.

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

Shinta Kamdani referred to the state budget as the "DNA of national growth" that determines economic direction, development priorities, and resource distribution. However, she emphasized that a solid state budget would not be effective without strategic collaboration between the government and the private sector.

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

"In the midst of various challenges, to achieve the growth target, Apindo welcomes the synergy between the government and the business world through Indonesia Incorporated, where the business world always continues to provide input based on field data that is of concern to the government," said Shinta.

On the other hand, Macroeconomic and Financial Market Researcher at the University of Indonesia's Institute for Economic and Social Research (LPEM UI), Teuku Riefky, believes that other assumptions that form the basis for the 2026 Draft State Budget, such as inflation or exchange rates, are within reasonable ranges.

However, he has a different projection for economic growth and estimates that it will not reach 5.4% in 2026.

"I think the others [macroeconomic assumptions] are quite realistic, except for economic growth. I think next year economic growth will not reach 5.4 percent," he explained to SUAR (15/8/2025).

He emphasized that strengthening the state budget posture should not be done by increasing tax rates. He proposed a more innovative and structural strategy to increase state revenue, namely through the utilization of the Population Identification Number (NIK) and job creation. 

Riefky sees great potential in using NIK as a tool to track people's income more accurately. With this system, the government can identify potential taxes that have not been recorded, especially from the informal sector. "Using NIK to track people's income and reduce the cost of informality is also significant enough to affect state revenue," he said.

Furthermore, Riefky emphasized that increasing state revenue cannot stand alone. He argues that fiscal policy must be supported by broader structural policies, especially to create jobs.

"There needs to be structural policies that encourage job creation so as to increase people's purchasing power," he said. 

"There needs to be structural policies that encourage job creation so that it can increase people's purchasing power," said Riefky.

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