March 18, 2026 | 08:37 am
TEMPO.CO, Jakarta - Economist from the Center of Reform on Economics (CORE) Indonesia, Dipo Satria Ramli, stated that three consequences will occur if the government raises the state budget deficit limit above 3 percent of the gross domestic product (GDP). The three consequences are a downgrade of the debt rating, capital outflow, and crowding out.
Global rating agencies such as Fitch Ratings and Moody's have downgraded the country's debt (sovereign rating) outlook. Fiscal risks, including the widening of the budget deficit, are among the focuses of these two institutions.
"If there is no improvement within 18-24 months, there is a high probability that the sovereign rating will be downgraded," said Dipo during an online discussion entitled Criticizing the Plan to Increase the State Budget Deficit Limit, held on Tuesday, March 17, 2026.
If that happens, it will have a significant impact on the economy. The increased debt costs will make bank loan costs rise and make the deficit more difficult to finance.
The second risk is capital outflow. Raising the state budget deficit limit risks causing investors to withdraw their funds, leading to a weakening rupiah and triggering inflation. Consequently, purchasing power could decrease. This situation could affect the lower class.
Furthermore, there is the crowding-out effect. Crowding out occurs when an increase in government spending, particularly through debt, leads to a reduction in private-sector investment.
If the deficit is increased, according to Dipo, the government will likely absorb even higher levels of debt. As a result, the liquidity of the financial market, which should be for the private sector, is diverted to finance the government. "Eventually, credit for micro, small, and medium enterprises (MSMEs) and the private sector will dry up," he said.
According to the State Finance Law, the state budget deficit should not exceed 3 percent of the GDP. The plan to raise the state budget deficit limit was initially proposed by Coordinating Minister for the Economy Airlangga Hartarto after he presented three worst-case scenarios of the state budget deficit in the aftermath of the war in the Middle East. He also prepared the option of issuing a Government Regulation in Lieu of Law (Perppu).
Finance Minister Purbaya Yudhi Sadewa stated that the government has not yet decided to take that option. He assessed that the state budget is still in a safe condition. "If high oil prices persist for a long time, then we will reassess the budget conditions, but it won't be an immediate issuance of the Perppu," he said in Jakarta on Monday, March 16, 2026.
Read: Prabowo Opens Door to Wider Deficit if Oil Prices Surge
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