Indonesia Plans New Budget Law, Keeps Deficit Limits Untouched

The Indonesian parliament is set to begin work on a broad update to its financial legislation.
The changes, described as an “omnibus bill,” will bundle several reforms into one package and are driven mainly by the need to integrate a new sovereign wealth entity, Danantara. This fund was created in February last year and now holds more than $900 billion of state‑owned assets, including coal, palm oil and ferroalloys.

Key Provisions

• Shift of Responsibility
  The draft moves the management of state investments from the finance minister directly into Danantara. Once this move is made, profits from state enterprises would flow into the fund rather than supplementing the national budget. The aim is to keep the government’s revenue stream more predictable while allowing Danantara to operate with greater autonomy.

• Fiscal Rules Remain Unchanged
  Lawmakers are clear that the bill will not touch the current deficit ceiling of 3 % of GDP or the debt cap set at 60 % of GDP. Even though investors and rating agencies have expressed concerns about President Prabowo Subianto’s ambitious spending plans, the committee has stated that it is not considering any adjustments to these fiscal limits at this stage.

• Central Bank’s Expanded Role
  The new legislation will be rolled out after the parliament finalizes an amendment to the financial system law. That change is expected to broaden the central bank’s role, emphasizing its contribution to economic growth rather than just monetary stability.

Strategic Implications

The move reflects a strategic shift: by consolidating state assets under Danantara, Indonesia hopes to streamline investment decisions and improve the management of its natural resources. It also signals a willingness to modernize governance structures without immediately altering fiscal rules that could unsettle markets.