Indonesia in 2026: Prabowo’s First ‘Real’ Year of Ambition and Why We Should Care

Indonesia’s 2026 state budget is the first that is truly President Prabowo Subianto’s, in the sense that his administration drafted and defended it and it is not inherited from his predecessor Joko Widodo. This matters because the budget is the presidency’s ‘operating system’: it reveals what Prabowo’s government will prioritise or postpone, and signals who will bear the costs of adjustment.

Prabowo’s ambition for Indonesia has been transposed onto the 2026 budget. On paper, it projects calm and control, projecting revenues of IDR 3,153.6 trillion (US$190 billion) and spending at IDR 3,842.7 trillion (US$230 billion), with an estimated deficit of IDR 689.15 trillion (US$41 billion; 2.68 per cent of gross domestic product, GDP). It assumes 5.4 per cent annual growth and 2.5 per cent inflation. This signals an expansionary but still strict budget, large enough to intervene selectively (through flagship programmes, price stabilisation, and administrative control) but prudent enough to reassure markets.

However, with Indonesia’s 2025 fiscal deficit reaching around 2.9 per cent of GDP, any room for error in 2026 is slim. If the government misses key revenue targets, overspends or if growth is sluggish, there is a risk that Indonesia will exceed its legal limit of a three per cent deficit.

Also, the budget’s neat calculations rest on unguaranteed conditions. As of November 2025, the Ministry of Finance recorded tax revenues of just IDR 1,634.43 trillion (US$97 billion) – only 78.7 per cent of its 2025 target. Net tax revenues contracted from the previous year: the weakness lies in taxes that track real economic activity, that is, value-added taxes (VAT, or PPN) and corporate income tax (PPh Badan). This indicates a slower pace of transactions, cautious consumption, and pressure on business activities, not entirely explained by Indonesia’s problematic rollout of its Coretax system, which slowed down tax collection due to administration and compliance adjustments.  

Hence, 2026 will be less a year of “promise” and more of a “stress test”. If revenues underperform but spending misses targets, there will be a tension between the government’s promises and Indonesians’ benefits. In parliament’s deliberations, the deficit was projected to reach around 2.68 per cent of GDP, strongly signalling that programme expansionary pressures will shape policy outcomes through the year.

2026 will test whether Indonesia’s state-led policy can endure under fiscal pressure…

For citizens, when government revenues are tight and raising state debts does not increase fiscal space, the consequences of the state’s spending choices become more visible. The president has signalled that he will continue to prioritise flagship programmes like the free nutritious meals’ (MBG) programme, which spent IDR 51.5 trillion (US$3.05 billion; 72.5 per cent of the targeted amount) in FY2025. Other key projects include Prabowo’s red-and-white village cooperatives (Koperasi Desa Merah Putih), “people’s schools” (Sekolah Rakyat), and food and energy estates. This year, there may not be dramatic budget cuts like the one in January 2025, which led to significant reallocations protecting priority programmes but resulted in delays and postponements of infrastructure, maintenance, and regional service projects.

Hence, Indonesians must keep an eye on Prabowo’s 2026 policies for social protection and their livelihoods. When government budget cuts are inevitable, flagship programmes, particularly MBG, expected to absorb around IDR 300-330 trillion (becoming the largest single social programme in Indonesia’s history) will be politically protected. This will force other policy programmes to be adjusted more quietly, which has already been signalled by the president himself, around efficiency, tighter eligibility for benefits and stricter targeting.

The government is justifying this as efficiency led by data-driven governance, pushing for a unified social registry it describes as a “single source of truth”, in the form of its year-old national socio-economic data system, DTSEN (Data Tunggal Sosial dan Ekonomi Nasional). Despite DTSEN being a sensible idea, such “better targeting” in reality often means fewer people qualify for government benefits. Millions of Indonesians close to the poverty line will become more exposed, while workers and families with unstable incomes such as informal workers and small traders will be more vulnerable to price shocks, illness, or job loss. For them, the state is pulling back support when uncertainty remains high.  

The labour market outlook continues to be challenging. While the government targets improvements in unemployment, poverty, and inequality, 2025 revenue data suggest caution: declining PPN and PPh Badan receipts point to slower transactions and pressured business profits, which usually translates into low formal recruitments and wage increases, and slow business expansion. 2026 will likely be a year where sectors like export-oriented manufacturing and business linked to government spending may rebound quickly, while others like domestic-demand services, small and medium-sized enterprises (SMEs), and labour-intensive informal sectors stagnate.

These social and economic pressures are not politically neutral. Budget choices and perceptions of inequality, particularly around cost of living issues and elite privileges, fuelled public protests and discontent in late August 2025. In 2026, similar dynamics will reappear. A growing accumulation of grievances such as lower-income groups’ complaints about being dropped from assistance, frustration with rising prices, and scepticism about who or what the state is prioritising, will come to the fore.

What emerges, then, is a distinctive political economy risk. Prabowo’s 2026 agenda promises a strong and protective state that intervenes in social policy, asserts control in strategic sectors (including resource extraction and state-owned enterprises (SOEs) through Danantara), yet operates under fiscal constraints. If citizens experience this as “protection” or “preference” for some but “removal” or “loss” for others, the government’s legitimacy will erode.   

For citizens, concrete signals matter. The government’s tax collection trends bear watching, since they are early indicators of whether Indonesia’s recovery is broad-based or fragile. Changes in social assistance rules and their implementation, including who are dropped from assistance benefits, how the government handles grievances and whether transitions are gradual or abrupt, will affect the public mood. The costs of basic goods and services (food, transport, health, and education) and centre-region relations, especially budget transfers and service delivery, will highlight fiscal stress (in the periphery before the centre). Finally, how the administration responds to criticism and protests will also determine stability.

2026 will test whether Indonesia’s state-led policy can endure under fiscal pressure, and whether Prabowo and his team can seriously improve administrative capacity, policy execution, withstand external shocks, and shore up legitimacy. Ambition is necessary for achievement, but so are competence and fairness in policymaking. Whether Indonesians can feel that the state remains on their side in uncertain times will make or break Prabowo’s second year as president.

2026/11