Indonesia expands regional fiscal capacity and launches Rp26.34 trillion stimulus package

The Indonesian government is intensifying both long-term fiscal restructuring and short-term economic support measures as it seeks to strengthen regional economies and sustain national growth momentum heading towards 2027.

According to the Ministry of Finance, regions are being positioned as a central pillar of Indonesia’s growth strategy through expanded fiscal transfers, improved local budget capacity, and wider access to development financing. The policy direction is outlined in the 2027 Macro-Economic Framework and Fiscal Policy Principles (KEM-PPKF), which places increased emphasis on regional economic performance as a driver of more balanced national growth.

The Finance Minister said Indonesia’s economy continues to demonstrate resilience despite global uncertainty. Economic growth stood at 5.61 per cent, inflation at 3.08 per cent, the trade surplus extended to 72 consecutive months up to April 2026, and credit growth reached nearly 12 per cent in May 2026.

“In the midst of global uncertainty, Indonesia’s economy continues to show strong resilience. However, going forward, to achieve higher growth, we will activate all engines of economic growth, both at the central and regional levels,” the Minister said.

Rising fiscal space for regions

The government is preparing an expansion of fiscal space for regional administrations, with additional allocations estimated at around Rp40 trillion (approximately US$2.58 billion), potentially rising to Rp90 trillion (approximately US$5.81 billion), depending on fiscal conditions and adherence to budget discipline.

Officials emphasised that the expansion will be implemented cautiously to maintain the state budget deficit within a prudent range.

The strategy for strengthening regional finances is based on three pillars: improving local revenue mobilisation, increasing the efficiency and quality of public spending, and developing innovative financing mechanisms. These reforms are intended to enhance regional capacity to fund infrastructure and support the emergence of new growth centres outside major urban areas.

A key financing instrument is the use of development funding through PT Sarana Multi Infrastruktur, which provides regional governments access to long-tenor, relatively low-interest financing for infrastructure projects including schools, hospitals, water systems, and regional roads.

Macroeconomic outlook and policy coordination

The government has set an economic growth target of 5.8 per cent to 6.5 per cent for 2027, supported by coordinated expansion across national and regional economies, private sector activity, and financial sector liquidity.

“We will activate all engines of economic growth—central, regional, and including the real sector. We will ensure that the banking sector has sufficient liquidity to support private sector growth. In that way, next year’s economic growth is expected to approach 6 per cent or even higher,” the Minister said.

In parallel, Indonesia is strengthening the framework for central–regional fiscal relations, including the digitalisation of intergovernmental transfers and improved coordination between national and local fiscal planning. These reforms are intended to improve transparency, accountability, and execution efficiency.

Rp26.34 trillion (US$1.70 billion) stimulus package focused on consumption, jobs and food security

Alongside the medium-term fiscal strategy, the Coordinating Ministry for Economic Affairs (Indonesia) has announced a Rp26.34 trillion (approximately US$1.70 billion) economic stimulus package for the second quarter and second half of 2026.

The package is structured into three main pillars: consumption support, labour and skills development, and food assistance. Officials said the measures are designed to mitigate external risks while maintaining domestic economic momentum.

Coordinating Minister for Economic Affairs Airlangga Hartarto said the stimulus package follows directives from President Prabowo Subianto and builds on earlier policy coordination between ministries.

Consumption and industrial support

Under the first pillar, the government introduced a range of consumption-boosting measures, including a 1.5 per cent final income tax rate on royalties for writers, and transport subsidies during peak travel periods such as school holidays, Christmas, and New Year.

These include:

• 30 per cent discounts on train and Pelni ferry fares
• Waiver of ASDP port service fees
• Full VAT subsidies for domestic economy-class air travel

Industrial incentives include zero import duties on LPG for petrochemical industries and on selected raw materials for plastics manufacturing, aimed at reducing production costs and stabilising consumer prices.

Labour market programmes

The second pillar focuses on employment and human capital development. The National Internship Programme will enter its second phase in July 2026 with a budget of Rp4.14 trillion (approximately US$267 million), targeting 150,000 recent university graduates.

An additional Rp2.12 trillion (approximately US$137 million) is allocated for vocational training programmes, aimed at 220,000 vocational school graduates and 50,000 workers affected by job losses, with the objective of improving workforce readiness and facilitating re-employment.

Food security and price stabilisation — largest share of spending

The third pillar, focused on food assistance and price stabilisation, accounts for the largest share of the stimulus package.

A total of Rp17.54 trillion (approximately US$1.13 billion) is allocated for the distribution of 10-kilogram rice packages to 33.24 million beneficiary households over three months starting July 2026. This programme represents the single largest component of the stimulus.

In addition, the government will implement a soybean price and supply stabilisation programme (SPHP), providing subsidies of up to Rp2,000 per kilogram (approximately US$0.13/kg) for tofu and tempeh producers under an initial quota of 250,000 tonnes.

According to officials, the combined food-related interventions—including rice assistance and soybean stabilisation measures—make up the majority of the overall stimulus allocation, underscoring the government’s emphasis on maintaining household purchasing power and stabilising basic commodity prices.

The government said total stimulus spending consists of Rp2.04 trillion (US$132 million) in transport incentives, Rp6.26 trillion (US$404 million) for labour programmes, and Rp18.04 trillion (US$1.16 billion) for food-related support.

Across both the medium-term fiscal strategy and the 2026 stimulus package, authorities reiterated that policy focus remains on sustaining growth, strengthening regional economies, and supporting household consumption while maintaining fiscal prudence.