Highlights

• RAPBN 2027 Balances Growth Ambition with Tighter Fiscal Space: President Prabowo proposed IDR4,097.2tn of state expenditure against IDR3,426tn of revenue, implying a fiscal deficit of 2.40% of GDP, narrower than the 2.68% target in the 2026 budget. The 2027 macro assumptions include 6.0% GDP growth, 2.5% inflation, IDR 17,500/USD, a 6.9% 10-year SBN yield, and USD75/bbl ICP. While the budget signals continued support for growth, the relatively ambitious macro assumptions and narrower deficit leave less room for policy slippage if revenue or growth underperforms.

 

• Domestic Demand Continues to Show Signs of Moderation: Consumer confidence declined to 116.8 in July, its lowest since April 2025, while June retail sales contracted 3.0% YoY for a third consecutive month and property-credit growth slowed to 4.24%, its weakest pace in 4.5 years. July car sales jumped 33% YoY, but the improvement appears concentrated in selected higher-value segments and does not yet indicate broad-based recovery in consumption demand.

• Investment and Financial-Market Reforms Offer Upside, but Execution Remains Key: The government reiterated plans for the Pusat Finansial Internasional Indonesia (PFII) in Jakarta and eventually Bali, alongside IDX demutualization, a new Mineral and Strategic Commodity Exchange, SOE asset optimization, and the Danantara Development Management Fund. These initiatives could support longer-term capital formation, although near-term benefits may remain limited without stronger governance, regulatory clarity, and credible price discovery.

 

• Fiscal Performance is Tested, Given Spending Pressures Are Rising: Through July 2026, state revenues grew 21.3% YoY while expenditures increased 18.2%, with the fiscal deficit contained at 0.91% of GDP. Procurement efficiency of up to IDR360tn could provide additional fiscal space, but sustained spending growth and ambitious development targets may gradually increase pressure on the budget if revenue momentum begins to normalize.

 

• External Issues Remain as Key Downside Risks for Indonesia: Renewed uncertainty around the Strait of Hormuz pushed oil toward USD 90/bbl during the week, while US Treasury yields remained elevated. Indonesian equities saw sizeable foreign outflows and heightened volatility, although government bonds recovered toward the end of the period. Persistent external pressures could constrain IDR stability, increase domestic funding costs, and reduce the policy room available to support growth.