Indonesia: Expansionary Stance with Narrowing Buffer Space - Standard Chartered Bank

Standard Chartered Bank analyst Aldian Taloputra noted in a latest assessment that Indonesia's 2027 fiscal plan presents a mix of "expansionary stance and narrowing buffer space." The official 2027 deficit target is set at 2.4% of GDP, down from 2.9% in 2026, which on the surface suggests a more prudent fiscal discipline, but Standard Chartered holds reservations about the achievability of this target.

**Optimistic Revenue Assumptions, Deficit May Not Narrow as Scheduled**

Standard Chartered maintains its own forecast of a 2.9% GDP deficit for Indonesia in 2027, flat from 2026 levels, rather than the official target of 2.4%. The bank's rationale centers on two factors: overly optimistic government revenue assumptions and potential tax shortfalls that could erode the fiscal revenue base. This implies that even if official figures show a declining deficit ratio, the actual fiscal buffer space in execution may be more limited than the paper numbers suggest.

**Expansionary Stance Continues, Buffer Space Under Pressure**

From a policy perspective, Indonesia's fiscal posture remains expansionary, but the buffer space available to respond to internal and external shocks is narrowing. Standard Chartered's analysis suggests that if tax revenues underperform, the government may face a dilemma between "maintaining expenditure expansion" and "holding the deficit target." For the market, this increases attention on Indonesia's fiscal sustainability and sovereign credit fundamentals.

**External Confidence Intertwined with Policy Uncertainty**

Previous reports have shown that some foreign banks have scaled back business exposure due to concerns over Indonesia's policy direction, reflecting heightened sensitivity of external capital to Indonesia's policy environment. Standard Chartered's cautious assessment of the fiscal plan corroborates this backdrop, indicating that fiscal credibility has become one of the key variables in observing the attractiveness of Indonesian assets.