Indonesia Sets a Strategy to Reduce the Deficit as Debt Climbs
Indonesia’s national finance leadership, led by Finance Minister Purbaya Yudhi Sadewa, is outlining a strategy to tame a rising government debt burden. Data show the central government’s debt reaching Rp9,138.05 trillion by the end of the first semester in 2025, a level the ministry describes as within safe and moderate bounds relative to peers. The plan hinges on targeted spending, stronger revenue collection, and a push to accelerate economic growth to lift the tax take and, in turn, shrink the deficit.
Targeted Spending and Timely Budget Execution
Key among the measures is spending the budget in a targeted, on-time manner with minimal leakage. Minister Purbaya emphasized that every rupiah should be directed to high-impact programs that stimulate the economy while maintaining fiscal discipline. “The first strategy is to spend the budget, targeted and on time, with no leakage, to optimize the budget impact on the economy,” he said at the Ministry of Finance on October 27, 2025. This approach, the minister argues, will help lift economic activity and widen the tax base through faster growth.
How Growth Drives Revenue
faster economic growth is seen as a direct path to higher state revenue. Purbaya noted that when the economy expands, tax collections from sectors like customs duties, income taxes, and Coretax can increase. He quantified the expectation by linking growth momentum to revenue improvements, suggesting that a stronger real sector could raise the tax-to-GDP ratio and reduce the deficit from multiple revenue channels.
Strengthening the Tax Ratio
The government’s plan also places an emphasis on expanding the tax ratio. Improvements in revenue collection across customs, taxes, and other core streams are highlighted as essential to boosting overall fiscal health. Purbaya is optimistic that the tax ratio could rise by as much as half to one percentage point if the real sector accelerates, aided by additional state revenue targets of around Rp100 trillion. The aim is to build resilience in the fiscal framework against fluctuating external conditions.
Supporting Growth to Sharpen Fiscal Tools
In addition to revenue-focused measures, officials are working to reduce obstacles to real sector growth. Purbaya indicated that his team expects a faster pace of growth in the current quarter, with a target of exceeding 5% if possible. He framed this as a critical element in strengthening deficits’ management, arguing that robust growth creates more room to maneuver fiscally and could lead to improved budget execution in the near term.
Debt Levels and Comparisons
According to Suminto, Director General of Financing and Risk Management (DJPPR), the Rp9,138.05 trillion debt represents about 39.86% of GDP at mid-2025. He noted that this ratio sits at a relatively safe and moderate level when compared with several other nations, highlighting that the debt position remains manageable while the country pursues growth-led revenue gains. The government, therefore, seeks to sustain that balance through disciplined budgeting and growth-oriented policy levers.
What This Means for Indonesians
For citizens, the strategy translates into a fiscal posture aimed at funding critical services without ballooning the deficit. If the plan succeeds, faster economic growth and higher tax contributions could reduce the need for more borrowing and help stabilize public finances over the medium term. While the exact trajectory depends on global economic conditions and domestic reforms, the finance ministry’s focus on targeted spending and revenue enhancement is intended to create a more resilient budget for Indonesia’s future.
By pursuing disciplined spending, expanding the tax base, and targeting growth, Indonesia aims to keep debt at sustainable levels while supporting a trajectory toward stronger, more inclusive economic progress.
