Fiscal deficit narrowed. Monthly fiscal deficit narrowed to IDR49.9tn in September from IDR82.3tn in August, resulting in a cumulative 9M25 deficit of IDR371.8tn or 1.5% of GDP vs. 1.1% deficit in 9M24. Government spending declined by 6.7% m-o-m, reversing 13.1% increase in August, while revenue expanded by 6% vs. 5.9% contraction in August. Net fiscal financing rose to IDR458tn in 9M25 from IDR425tn in 8M25 (69% of outlook). Excess financing (SILPA) fell to IDR86tn in 9M25 from IDR104tn in 8M25 (9M24: IDR101tn).
Lower regional transfers, higher central spending. The decline in monthly government spending was led by lower regional transfers which fell by 26% m-o-m. MOF noted that despite higher ytd by 1.5% y-o-y, actual absorption of regional spending is low indicated by higher placement in regional banks that is 21% higher. Despite 18.8% y-o-y contraction due to the absence of subsidy compensation payment, central government spending remained strong, rising by 3.1% m-o-m. The increase was led by material and capital spending (Exhibit 1). Excluding subsidy compensation, central government spending growth rose to 3.5% y-o-y from -1.3% in August. The MOF plans to settle 1Q subsidy due to Pertamina and PLN in October.
Social transfer and MBG. Social transfer fell sharply to IDR11.6tn from IDR18.2tn, totaling IDR112.7tn in 9M25 (1% y-o-y), likely reflecting the absence of food aid cash transfer. The Free Nutritious Meal (MBG) coverage reached 31.2mn recipients (37.6% of 82.9mn target) through 10,012 central kitchens (40% of target). However, MBG budget realization remained limited at IDR20.6tn (17.8% of the total IDR116tn budget), vs IDR13tn in August (Exhibit 2). Minister Purbaya said there will be more fiscal stimulus to come to help reach GDP growth of 5.5% in 4Q.
Tax collection improved. Monthly tax revenue increased by 9.9% m-o-m from 4% decrease, implying 1% y-o-y from -3.8%. This reflects lower tax refund at the time when gross tax collection (excl. refund) rose to 0.9% y-o-y from 0.8% (Exhibit 3). MOF reported that tax collection from 200 major delinquent taxpayers reached IDR7tn vs target of IDR20tn by year-end. Monthly excise also increased by 6% m-o-m from IDR18.2tn. MOF stated a total of 816mn illegal sticks were seized in 9M25, up 37% y-o-y. The tobacco producer agglomeration program is now operating in four cities, involving 35 companies.
We lower our fiscal deficit in 2025. We now expect a fiscal deficit of 2.6% of GDP for 2025, lower than 2.8% in the outlook (2024: 2.3%). As of September, three ministries, including National Nutrition Agency (BGN), Agriculture, and Public Works still had low budget realization (Exhibit 4). While we expect spending to pick up further, we expect it to reach only 95% of MOF outlook, implying a total IDR1,130tn realization in 4Q25 vs IDR1,293tn in the outlook and IDR1,099tn in 4Q24. We also expect a higher-than-expected revenue with the recent lower tax refund despite still below the MOF outlook. The plan for a separate Tax Agency is off the table, said Minister Purbaya, citing focus on efficiency and compliance.
Fiscal in 2026. We now forecast 2026 fiscal deficit to reach 2.7% of GDP, in line with the budget (from 2.6% before). We expect a better spending disbursement next year with the improvement in the budget flexibility. Minister Purbaya continued to warn ministries and agencies to accelerate spending or face fund reallocation. On tax, Finance Minister Purbaya said the tax ratio could rise by 1% due to real sector recovery, contributing IDR200 210tn in revenue by 2026. During the Q&A session, in response to question on lower VAT rate, he said the feasibility of a cut to aid purchasing power will be assessed at year-end. The MOF also extends the 100% VAT incentive for housing to 2027.
