Prabowo Narrows 2026 Budget Gap to 2.48% of GDP, Taps Danantara to Drive Investment

JAKARTA, Investortrust.id — President Prabowo Subianto narrows Indonesia’s 2026 state budget deficit to 2.48% of GDP on Friday, Aug 15, 2025, equal to Rp 638.8 trillion or $41.2 billion, and places a bigger onus on the sovereign wealth fund Danantara and private investors to power growth next year.

The draft state budget, formally the State Budget Draft (RAPBN) 2026, set total spending at Rp 3,786.5 trillion and revenue at Rp 3,147.7 trillion. Prabowo framed the fiscal stance as catalytic rather than dominant, saying the government would keep the budget flexible and debt prudent while relying more on “creative and innovative” financing alongside Danantara and private capital.

“The state budget must be used for the greatest welfare of the Indonesian people,” he said. He added that natural resources “must be managed for the people, not for a small group,” reinforcing the administration’s downstreaming push to lift value-added and jobs.

The president anchored the proposal in a backdrop of firmer activity and tempered prices. The economy expanded 5.12% year-on-year in the second quarter, driven by household consumption that rose 4.97% and exports that climbed 10.67%. Joblessness eased to 4.76% in February, roughly 3.6 million jobs were created, poverty fell to 8.47%, and inflation was kept at 2.4%.

Earlier this year, the government deployed two stimulus rounds—Rp 33 trillion in January and Rp 24.4 trillion in June—to cushion global shocks and sustain demand.

 

Deficit and Financing Strategy

The administration cast the slimmer gap as a commitment to medium-term fiscal sustainability. It said the deficit would be funded with prudent, innovative, and sustainable financing, while optimizing revenue through a fairer tax regime that protected investment and redistributed income. The government also said it would intensify asset management so that state-controlled resources generated higher returns for the public.

Crucially, the plan shifted more growth responsibility to Danantara and the business. The government said the state budget would focus on basic services and social protection, while Danantara and the private sector would be engines for high-value-added, commercially viable activity. Officials highlighted a pipeline of downstream projects totaling $38 billion (about Rp 589 trillion), spanning minerals and coal, agriculture, fisheries, and the battery ecosystem.

“We will continue to advance more creative financing schemes by empowering Danantara and the private sector as engines of economic growth, job creation, and investment, and by deepening financial innovation—so that not everything has to rely on the state budget,” Prabowo said.

Transfers to regions were designed as an integrated part of national spending rather than a stand-alone channel, aimed at reducing inequality and improving service delivery. Social assistance and energy subsidies would be retargeted using the National Socioeconomic Single Registry (DTSEN) to improve accuracy and reduce leakage.

Focus Programs for 2026

Food security formed the first pillar. The government said it would continue reforms that streamlined fertilizer distribution rules and supported new paddy fields, better seeds, modern farm machinery, and affordable financing.

It earmarked Rp 164.4 trillion ($10.6 billion) for national food resilience, including Rp 53.3 trillion ($3.44 billion) for strategic stock and reserves, Rp 46.9 trillion ($3.03 billion) for fertilizer subsidies to deliver 9.62 million tons, and Rp 22.7 trillion ($1.46 billion) to strengthen Bulog, the state logistics agency, as stock buffer and price stabilizer.

Energy security was the second anchor. The state targeted higher oil and gas output, safeguarded affordable energy, and accelerated renewables deployment. The fiscal package for energy—including subsidies, tax incentives, renewable programs, and rural electrification—reached Rp 402.4 trillion ($26.0 billion). 

Prabowo said, “Renewable energy is the future,” positioning the goal of fully renewable power generation within a decade as compatible with affordable electricity access.

Human capital dominated the social agenda. The Free Nutritious Meals program (MBG) would scale nationally to reach 82.9 million beneficiaries—students, pregnant women, and toddlers—through local nutrition service units.

The 2026 allocation is Rp 335 trillion ($21.6 billion). Education spending remained at 20% of the budget at about Rp 757.8 trillion ($48.9 billion), prioritizing teacher quality, vocational alignment with labor-market needs, and scholarships via the Indonesia Smart Program (PIP) and the Indonesia Smart College Card (KIP Kuliah). 

Funding of Rp 150.1 trillion ($9.7 billion) was set aside for school and campus facilities, and Rp 178.7 trillion ($11.5 billion) for teacher pay, competency, and welfare. The LPDP endowment fund is targeted to award 4,000 overseas scholarships in 2026.

Health policy focused on equity and access, centered on the National Health Insurance program. The state would continue to fully cover premiums for 96.8 million poor and vulnerable citizens.

The 2026 health allocation reached Rp 244 trillion ($15.7 billion), backing hospital revitalization, stunting reduction, maternal and child nutrition, infectious-disease control, including tuberculosis, Free Health Checks (CKG), and facility upgrades.

The administration also placed village economies at the heart of its growth strategy through the Merah Putih Village and Ward Cooperatives.  

With 80,000 cooperatives now operating, the network aims to streamline distribution, lower prices for staples and farm inputs, expand credit through state-owned banks under Indonesia's State Owned Banks Association (Himbara), and create rural jobs—strengthening food security and easing poverty in the hardest-hit areas.

Defense modernization rounded out the priorities. The government said it would upgrade main weapon systems, build up reserve components, and deepen the local industry’s role, linking military readiness with economic, social, and political resilience as foundations for long-term prosperity.

Housing remained a visible plank for inclusion. The government set a 2026 support target of 770,000 homes through subsidized mortgages under the Housing Finance Liquidity Facility (FLPP), self-help housing grants in villages, towns, and coastal areas, and VAT relief for affordable commercial units, aiming to close the housing gap while stimulating local supply chains.

Prabowo’s economic vision ultimately relied on the state budget as a stabilizer and catalyst, and on Danantara and private enterprise as multipliers. The president said the government would “keep the budget healthy and credible” while ensuring that spending delivered tangible benefits, jobs, and better public services.

Dollar equivalents are estimates using Rp 15,500 per $1.

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