Indonesia’s government is setting the stage for a bold transformation in 2026, as President Prabowo Subianto’s first full-year budget outlines an ambitious vision for Southeast Asia’s largest economy. During his address to the House of Representatives in Jakarta on August 15, 2025, Prabowo laid out a sweeping plan that prioritizes national defence, food and energy security, quality education, healthcare, rural development, and investment promotion—painting a picture of a nation eager to modernize and uplift its citizens, even as economists raise eyebrows over the feasibility of such expansive spending.
At the heart of the 2026 Draft State Budget (RAPBN) is a commitment to modernize Indonesia’s defence capabilities. Prabowo emphasized that the budget will fund the upgrade of weaponry and defence equipment, fortify the Reserve Component (Komcad), and empower domestic defence industries. Soldiers’ welfare is also in focus, with pledges to improve their living standards. “Indonesia must build a strong defence capability to safeguard sovereignty and territorial integrity in a world full of uncertainty, where threats could come suddenly,” Prabowo declared, according to Vietnam News Agency. He added that Indonesia’s rare earth reserves, a critical resource for defence manufacturing, offer a strategic advantage, and both state-owned and private enterprises will be encouraged to participate in the sector.
But defence is just one piece of a much larger puzzle. The budget, totaling 3,786.5 trillion rupiah (about US$297.7 billion), also aims to drive social transformation. Prabowo’s flagship free nutritious meal program is set to nearly triple its allocation to 335 trillion rupiah, targeting 82 million schoolchildren and pregnant women. This initiative, as reported by The Business Times, is expected to deliver a direct boost to Indonesia’s food producers and ripple through the supply chain. Maybank economists Brian Lee and Chua Hak Bin noted, “The free meal programme will not only stimulate demand for poultry and dairy but also generate multiplier effects in rural areas, strengthening supply chains and fostering long-term awareness about nutrition.” Companies like Japfa Comfeed Indonesia and Charoen Pokphand Indonesia are poised to benefit, as are consumer goods makers such as Indofood CBP Sukses Makmur and dairy producers Ultrajaya Milk Industry and Trading and Cisarua Mountain Dairy. The US Department of Agriculture estimates Indonesia will need an average of 5.3 million tonnes of milk in 2025 to support the program, which has already reached 20 million children.
Healthcare is another pillar of the budget, with spending set to rise to 244 trillion rupiah. Expanded state insurance subsidies and a new free national health check-up initiative are expected to increase hospital visits, benefiting private hospital operators Medikaloka Hermina and Mitra Keluarga Karyasehat. The government’s focus on health and nutrition dovetails with its broader goal of boosting productivity and economic growth, with a target of 5.4% GDP expansion in 2026.
Despite these ambitious social measures, Prabowo’s budget also signals a shift away from his predecessor Joko Widodo’s focus on major infrastructure projects. While infrastructure spending for 2026 remains steady at 118.5 trillion rupiah, funding for the new capital, Nusantara, has been cut to 6.3 trillion rupiah—down from 13 trillion rupiah last year. The Nusantara Capital Authority told The Business Times that priorities have shifted from state budget support to private investment. Cement producers such as Semen Indonesia and Indocement Tunggal Prakarsa may feel the pinch from this reduced emphasis, though the government’s three million-home program could provide some relief. A total of 33.5 trillion rupiah has been allocated to the housing financing liquidity facility, funding 350,000 subsidized homes and supporting cement and building material producers. For the non-subsidized segment, the extension of value-added tax incentives is expected to benefit mid-to-high-end developers like Ciputra Development and Summarecon Agung, while mortgage growth could support major banks including Bank Central Asia, Bank Mandiri, and CIMB Niaga.
Banks, in fact, are set to be among the biggest winners in the new budget. Prabowo has promised to expand the micro loan scheme to 320 trillion rupiah, supported by 36.5 trillion rupiah in interest subsidies. State-owned banks with strong small and medium enterprise portfolios, such as Bank Rakyat Indonesia and Bank Mandiri, are expected to reap the benefits. The government will also channel 83 trillion rupiah into state-owned banks through the Merah Putih cooperative village programme, which distributes subsidized goods and provides financial services to unbanked populations.
Energy security is also a headline priority, with more than 400 trillion rupiah earmarked for renewable energy and electrification subsidies and incentives. This is expected to give a boost to energy companies such as Medco Energi Internasional, Pertamina Geothermal Energy, and Perusahaan Gas Negara. Fitch Ratings noted that the higher budgeted energy subsidy underscores oil giant Pertamina’s status as a key government-related entity, even after its recent ownership transfer to the sovereign wealth fund Danantara. The allocation should ensure timely government compensation of subsidies, while Pertamina’s capital expenditure is expected to rise in the medium term for oilfield development, refining, petrochemical capacity expansion, and renewable energy investments.
Yet, for all the optimism, analysts are sounding alarms about the fiscal realities underlying Prabowo’s ambitious agenda. According to Bloomberg, Prabowo is seeking to “aggressively wield state power to deliver his populist vision,” but is also committed to keeping a tighter rein on government spending. The government aims to collect 3,148 trillion rupiah (US$194 billion) in state revenue in 2026—a 10% increase from 2025 estimates. This target relies on a 13.5% jump in tax revenues, mainly through improved compliance and expanding the tax base to include the shadow economy, as Finance Minister Sri Mulyani Indrawati explained. But Fitch Solutions’ BMI research unit warned the revenue target “seems too optimistic given the lack of new tax measures and will likely result in the government overshooting its fiscal deficit target” of 2.48% of GDP.
Maybank Securities forecasts the 2026 fiscal deficit at 2.9% of GDP, assuming more modest revenue growth of 7%. The risk of missing revenue targets is compounded by Nomura Holdings’ expectation of a 2.5% decline in collections for 2025, due to the scrapped value-added tax hike and lower commodity prices. To fund the ambitious programs, government bond issuance for 2026 is set to surge 17% from the 2025 outlook, reaching 749.2 trillion rupiah. While Bank Indonesia’s interest-rate cuts may support short-term government debt, supply headwinds could raise longer-term yields, according to CIMB Bank economists. The government may plan early funding at the end of 2025 and tap into its large cash reserves to help manage bond supply concerns, as noted by The Star. Global bond investors, meanwhile, have shown a rising appetite for emerging-market local currency bonds, buoyed by a weaker dollar and monetary policy easing.
On the ground, Indonesia’s financial markets have reacted with caution. The rupiah fell 0.5% as markets reopened on August 19, 2025, leading declines among major Asian currencies. The yield on 10-year government bonds climbed 2.5 basis points to 6.4%, and local stocks slipped 0.1%. The Jakarta Composite Index, though, has climbed 11.6% year-to-date, supported by easing concerns over US tariffs, even as it eased 0.4% after back-to-back record highs last week.
As Prabowo’s government seeks to balance populist aspirations with fiscal discipline, the coming year will test Indonesia’s ability to deliver on its promises without jeopardizing economic stability. The stakes are high, and all eyes—domestic and international—are watching how this ambitious budget will play out in reality.
