Akmalal Hamdhi, Jakarta – Indonesia's slow state budget absorption is raising concerns over its potential drag on economic growth, with economists warning that the government may miss its 5 percent growth target this year.

Data from the Finance Ministry showed that state expenditure reached Rp 1,960.3 trillion ($116.9 billion) as of the end of August 2025, or 54.1 percent of the annual budget. Meanwhile, the fiscal deficit has already hit Rp 321 trillion ($19.2 billion), and the gap could widen further if disbursement lags continue.

Center of Reform on Economics (CORE) Indonesia economist Yusuf Rendy Manilet said weak government spending poses risks to both growth momentum and investor confidence. "If budget absorption remains low until year-end, the 5 percent growth projection could be missed and risks falling even lower, especially in construction and household consumption," Yusuf said Monday.

According to the Central Statistics Agency (BPS), Indonesia's economy grew 5.12 percent year-on-year in the second quarter of 2025, up from 5.05 percent a year earlier. The government is targeting 5.4 percent growth this year, yet the OECD projects a more modest 4.9 percent expansion in both 2025 and 2026.

Yusuf added that a ballooning deficit might force the government to borrow more, which in turn could undermine market trust. "Accelerating spending in the fourth quarter is critical to maintain this year's economic momentum," he said.

He argued that sluggish spending is not only a technical issue but also reflects structural challenges. These include bureaucratic red tape, temporary budget freezes for efficiency, delays in procurement and contracting, as well as risk aversion among officials fearing legal repercussions. In many cases, physical progress on projects has been out of sync with budget records, while planning remains overly top-down and less adaptive to economic dynamics.

"As a result, budget realization often bunches at year-end, and this reduces the multiplier effect on the economy," he noted.

Still, Yusuf welcomed Finance Minister Purbaya Yudhi Sadewa's recent initiative to conduct "budget patrols" in ministries and agencies with low absorption. He said the Finance Ministry's direct monitoring and technical assistance could help speed up execution.

"However, patrols alone won't be enough. The government also needs to simplify procedures, accelerate digitalization of procurement and verification, train officials to make faster decisions, and offer incentives for work units that absorb funds more efficiently," he added.

Source: https://jakartaglobe.id/business/indonesias-spending-slump-threatens-5-growth-targe