Business & Finance
Economists express skepticism over Indonesia's 6% growth target for 2027
President Prabowo Subianto's ambitious growth and deficit goals face skepticism amid fiscal concerns and global economic headwinds.
The short version
- President Prabowo Subianto aims to accelerate Indonesia's economic growth to 6% in 2027 while limiting the fiscal deficit to 2.4% of GDP.
- Prominent economists warn that the timeline and growth targets are overly ambitious without an unexpected commodity boom.
- The country's financial outlook remains pressured by domestic debt, a weak rupiah, a potential MSCI classification downgrade, and geopolitical risks.
Key facts
- President Prabowo Subianto's draft budget aims to increase Indonesia's economic growth to 6% in 2027, up from its decade-long average of approximately 5%, while keeping the fiscal deficit at 2.4% of GDP.[CNBC]
- Economists from institutions including the Institute of International Finance, Capital Economics, Bright Institute, and DBS Bank have publicly questioned the feasibility of these dual targets.[CNBC]
- MSCI extended its review until November to determine whether Indonesia should be downgraded to a frontier market, following concerns regarding fiscal spending and the independence of the central bank.[CNBC]
- Indonesia has committed to keeping subsidized fuel prices unchanged through 2026, which may pressure the budget if geopolitical tensions involving Iran cause global oil prices to rise.[CNBC]
- Data from Indonesia's Financial Services Authority shows that outstanding online lending grew by 25.88% year-on-year in June, indicating consumer purchasing power may be supported by high-interest debt.[CNBC]
What remains uncertain
- It is uncertain whether MSCI will ultimately proceed with downgrading Indonesia to a frontier market when its review concludes in November.[CNBC]
- The stability of Indonesia's budget remains vulnerable to unpredictable external factors, such as the scale of China's economic slowdown and potential supply disruptions from the Iran conflict.[CNBC]