Highlights

• Fiscal story turns more binding into year-end: The Finance Minister acknowledged revenue softness is pushing the 2025 deficit above the initial target, though still expected to stay below the 3% legal ceiling.

 

• Disaster recovery becomes the dominant near-term spending call: The government signaled IDR 60tn of Sumatra recovery funding sourced from efficiency/reallocation—explicitly framed as not widening the deficit.

 

• ⁠Monetary policy remains “stability-first.”: BI kept the policy rate at 4.75% (third consecutive meeting), prioritizing FX and capital flows after a sizable easing cycle.

 

• Trade diplomacy intensifies amid protectionism risk: Indonesia is pursuing a bilateral arrangement with Mexico to avoid potential tariffs reportedly rising as high as 50% from 2026.

Overview

Indonesia entered the final stretch of 2025 with macro stability largely preserved, but with policy execution risks becoming more binding. Bank Indonesia maintained its stability-first posture, financial markets moved into consolidation amid year-end portfolio reshuffling, and fiscal authorities openly acknowledged that revenue underperformance and disaster-related pressures are pushing the 2025 deficit above the initial target, though still within the 3% legal ceiling. As the fiscal corridor narrows, the quality of execution—spending reallocation, funding strategy, and institutional credibility—has become as important as headline macro indicators. Climate shocks, labor cost dynamics, and governance of state capital vehicles are now key variables shaping the near-term macro-financial outlook.