Deficit widened sharply. The new Finance Minister Purbaya held the first APBN Kita after a long pause since June. Monthly fiscal deficit widened sharply to IDR82tn in August from IDR35tn in July, resulting in a cumulative 8M25 deficit of IDR322tn or -1.3% of GDP vs. 0.7% deficit in 8M24. Government revenue declined by 5.9% m-o-m, reversing 9% increase in July, while spending increased by 13% vs. 33% contraction in July. Net fiscal financing fell slightly to IDR425tn in 8M25 from IDR427tn in 7M25 (69% of target). Excess financing fell sharply (SILPA) to IDR104tn 8M25 from IDR188tn in 7M25 (8M24: IDR138tn).
Higher government transfer to region. Monthly regional transfers jumped by 42.1% m-o-m to IDR99.2tn in August. However, the actual government spending still likely lagged behind (Exhibit 1), reflected in higher local government placement in banks reaching IDR233tn in Aug vs IDR228tn in Jul (Appendix). Central government spending increased less sharply, led by social spending. By contrast, material spending fell 26.9% m-o-m, signaling moderation from efficiency budget release. MOF stated that budget release reached IDR168.5tn, up from IDR129tn in June and IDR87tn in April.
Social spending and MBG. Social spending rose sharply to IDR18.2tn from IDR4.9tn, totaling IDR101tn in 8M25 (5.4% y-o-y), likely driven by faster disbursement of food aid after July s low realization. Spending on Free Nutritious Meal (MBG) reached IDR13tn (11.2% of the total 116tn budget), up from IDR7.9tn in July. The MBG coverage reached 22.7mn recipients (27.4% of 82.9mn target) through 7,644 central kitchens (25.5% of target). National Nutrition Agency (BGN) reported that this year s budget may only reach IDR76.4tn for 75mn recipients and 25k central kitchens, under the earlier target (Exhibit 2).
Tax collection declined. Monthly domestic tax revenue decreased by 4% m-o-m to IDR148tn from July s 2% decrease, implying 3.8% y-o-y contraction from 0.5% increase in July, reflecting higher restitution. Gross domestic tax revenue (excl. restitution) moderated less sharply to 0.8% y-o-y from 2.3%, reflecting lower VAT collection (Exhibit 3). Cumulative tax revenue reached IDR1,330tn in 8M25 or -3.6% y-o-y vs -3.4% y-o-y in 7M.
Quick-win revenue measure. The MOF aims to improve tax collections by stimulating activity and pursuing enforcement. A list of 200 major delinquent taxpayers (IDR50 60tn potential) will be pursued, backed by coordination with the AG s Office, police, and cross-agency data sharing. Core tax IT issues will be addressed with specialist support. On excise tax, authorities have urged marketplaces to curb illegal cigarette sales and imports.
Below the line financing. As of August, investment financing rose to IDR42.7tn, up 52% compared to June realization, mainly for Housing Financing Liquidity Facility (FLPP) and food procurement by the State Logistics Agency (Bulog). This accounts for 31% of total IDR139.7tn investment financing outlook for 2025. FLPP absorbed IDR20.3tn (57.7% of budget) financing 163.8k housing units (46.8% of the 350k target).
We maintain a higher fiscal deficit for 2025. We keep our 2025 budget deficit forecast at 2.8% of GDP (vs. 2.3% in 2024), in line with the MOF s outlook. While the MBG program will likely fall below its target of 0.5% of GDP this year, we expect the MOF to shift some of the spending to other posts such as social programs. Indeed, on 12 September, Minister Purbaya said no financing surplus will be left idle this year. In addition, he emphasized close monitoring of disbursements and on-site reviews of challenges at line ministries. As such, we continue to expect spending to pick up in 2H and 2026 (Exhibit 4). We also expect a larger tax shortfall than the outlook. We maintain our 2026 deficit forecast at 2.6% of GDP but see upside risk from the new minister s pro-growth stance targeting a 2.7% deficit.
