Indonesia targets 5.4% growth in 2026 with big spending on food security, energy, free lunches
The plan also seeks to leverage the country's new sovereign wealth fund, Danantara, and private investment to drive the economy towards 5.4 per cent growth next year.
Prabowo said the budget is designed to ensure Indonesia remains strong, self-reliant and prosperous. It was presented to parliament on Friday (Aug 15), following the president's first State of the Nation address ahead of the country's 80th Independence Day on Sunday.
Indonesia will allocate 164.4 trillion rupiah for its food security programme, funding the development of new farmland and subsidised fertiliser for 9.26 million tonnes, as the government aims to boost agricultural self-sufficiency and reduce imports.
State revenue is projected at 3,147.7 trillion rupiah next year, with an estimated budget deficit of 638.8 trillion rupiah, or 2.4 per cent of gross domestic product. Meanwhile, inflation is targeted at around 2.5 per cent.
'The government is committed to continuing budget efficiency measures to keep the deficit as low as possible,' Prabowo said, adding that he expects Indonesia to achieve a zero budget deficit by 2027-2028.
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The government and parliament have nearly six weeks to review and deliberate on the draft before it is finalised and passed into law in October.
Nafan Aji Gusta, senior market analyst at Mirae Asset Sekuritas, said Prabowo's 2026 plans are highly optimistic, but market participants are waiting to see how the policies will be implemented.
The Jakarta Composite Index was down 0.41 per cent on Friday, after briefly reaching an all-time high during midday trading. Record levels were hit for a second consecutive session, supported by optimism over potential US Federal Reserve rate cuts this year and increased clarity on US tariffs.
'The budget reveal could potentially boost market confidence, allowing investors to optimise their portfolio performance through various adjustments,' said Gusta, noting that the upcoming Bank Indonesia policy meeting on Aug 20 and the inclusion of several Indonesian firms in the MSCI Emerging Markets Index are expected to drive passive inflows.
Weakening purchasing power
Indonesia's economy grew 5.12 per cent in the second quarter, beating expectations. However, the nation of 280 million is grappling with weakening consumer purchasing power and looming export pressures from US tariffs.
US President Donald Trump decided to impose a 19 per cent levy on Indonesian goods, in exchange for reducing trade barriers for American products.
Unlike previous administrations, Prabowo's 2026 budget does not include a targeted salary stimulus for civil servants aimed at boosting household purchasing power.
Bhima Yudhistira, executive director of the Center of Economic and Law Studies, said the government's efficiency measures under Prabowo have affected consumer purchasing power, as reduced government-led activity has dampened demand for goods and services.
'Indonesia needs to prioritise measures to support household spending, which is currently under pressure. Government spending and quality investment could play a key role in boosting purchasing power,' he said.
Yudhistira said Indonesia is facing challenges from volatile commodity prices, such as palm oil, coal and nickel, which could affect government revenue.
Sovereign wealth fund drive
South-east Asia's largest economy will fast-track US$38 billion in downstream projects through Danantara, targeting the mining, coal, agriculture, fisheries and renewable energy sectors.
'The role of Danantara will be optimised, including by involving national and global private sectors in a synergistic and collaborative manner,' said Prabowo.
He aims to boost oil and gas production next year while expanding the use of renewable energy through the development of clean power plants, including solar, hydro and geothermal. Indonesia has allocated 402.4 trillion rupiah for energy security in 2026.
Prabowo said that the country must aim to achieve 100 per cent electricity generation from new and renewable energy within 10 years, or even sooner.
The 73-year-old president has vowed to boost economic growth to as much as 8 per cent during his five-year term through populist measures. These include a multi-trillion-rupiah free lunch programme, a move that has raised investor concerns over its potential impact on state finances and budget discipline.
Next year, Prabowo plans to nearly double the free lunch programme budget to 335 trillion rupiah, from 171 trillion rupiah this year, with a goal of reaching 82 million children.
Crackdown on illegal resources
Indonesia, the world's largest palm oil producer, pledged that a broader crackdown would be launched on the illegal exploitation of natural resources, after a survey of palm plantations found that 3.7 million hectares (ha) were found to be operating unlawfully.
Five million ha of palm plantations have been placed under scrutiny.
Prabowo also announced the government's seizure of 3.1 million ha of illegal plantations with assistance from the military.
He said the government is also planning a crackdown on mining, adding that it had received reports of as many as 1,063 illegal operations throughout the vast, mineral-rich archipelago. He did not specify what type of mines or the commodities they were extracting.
Prabowo added that the government would take action against businesses found to be hoarding and exploiting key commodities in Indonesia. Large-scale rice mills would also be forced to obtain government permits to ensure rice quality and affordability.
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