Sizeable fiscal deficit in February. Monthly government spending rose sharply to 59.3% y-o-y to IDR266.5tn in February, up from 25.7% in January. Monthly revenue collection expanded by 15.8% y-o-y to IDR185tn (vs. 9.5% in January). As a result, the monthly fiscal deficit reached IDR81.4tn, implying cumulative deficit of 0.5% of GDP (vs -0.1% in 2M25), marking the widest 2M deficit since 2016 (Exhibit 1). Net fiscal financing reached IDR164.2tn (23.8% of budget), resulting in excess financing of IDR28tn.
Sharply higher central government spending. Central government spending surged by 70.7% y-o-y (vs. 53.3% in January), led by energy subsidy compensation payment, material, capital spending, also reflecting low base effect from last year s budget cut (Exhibit 2). Other spending rose sharply reflecting energy subsidy and compensation payments of IDR44tn, as MOF shifted to monthly payments instead of the lump-sum schedule. Material spending rose to IDR42tn, of which IDR19.5tn was allocated to the free meal program, implying 176% y-o-y. Capex spending rose by 381.2% y-o-y to IDR14.1tn.
Social spending increased. February social transfers increased to IDR17.5tn from IDR9.5tn in January, implying cumulative growth of 4.2% y-o-y, or reaching 16.1% of budget. Transfers to regions rose by 25.2% y-o-y to IDR52.4tn, driven by additional Sumatera disaster-related transfers amounting to IDR23tn. Total free meal program budget disbursement reached IDR44tn as of 9 March (13.1% of the IDR335tn budget), up from IDR36tn previously, covering 61.6mn recipients or 74% of the target.
Higher gross tax revenue. Monthly domestic tax revenue rose sharply by 44.5% y-o-y vs 30.7% in January, reaching 10.3% of budget (7.7% in 2M25), reflecting low base effect from issues on core tax collection system last year, led by corporate income tax (Exhibit 3). Excluding restitution, gross domestic tax revenue increased to 19.2% y-o-y, up from 7% in January, reflecting improving economic activity led by wholesale and retail trade which rose to 13.2% y-o-y from 2.6% in Jan, while tax refund only decreased to IDR38tn from IDR41tn in Feb25 (Exhibit 4).
Non-tax revenue increased. Excise and international tax contracted by 14.1% y-o-y in February, down from 13.8% decline in January, reaching 14.5% of budget, reflecting slower cigarette production. Meanwhile, non-tax revenue grew by -0.8% y-o-y, up from a 20.5% contraction, driven by higher revenue from public service agencies, which increased to IDR9.2tn from IDR2.4tn, supported by stronger hospital service fees and CPO export levies.
Oil price risks. Amid rising geopolitical risks, MOF will closely monitor developments, noting ICP at USD68/bbl YTD vs. USD70/bbl budget assumption (Global Watch: Middle East Tensions and the Growing Twin Deficit Risk). MOF signals more flexible spending which suggests reallocation to support higher fuel subsidy. In addition, MOF is considering measures to ensure higher commodity prices translate into stronger revenue which could mean higher levies to commodity sectors. Our estimates suggest that every 10% increase in oil and non-oil commodity prices could widen the deficit by 0.16% of GDP (Exhibit 5).
Our view. We now forecast a fiscal deficit of 3% of GDP from 2.8% before, higher than the 2.7% in the budget and 2.9% in 2025. This reflects higher fuel subsidy and sizeable revenue shortfall. However, stronger non-oil commodity prices could provide some offsets from higher oil prices which we now assume to average USD83/bbl (Fiscal Watch: Can Commodity Boom Save the Day?). During the Q&A, MOF noted that spending this year will be distributed more evenly, targeting IDR809tn in 1Q, implying 21% of the budget (vs. 18% average 2019-2025) to support 1Q GDP target of 5.5% y-o-y (Exhibit 6).
