Indonesia's Fiscal Pressure and External Deficit: Spotlight on Slow Government Spending and Nickel Investment

Indonesia's fiscal performance and balance of payments (BOP) showed significant strain in the second half of 2025. The Ministry of Finance (Kemenkeu) noted a widening State Budget (APBN) deficit and slow realization of government spending, while the Indonesia's Balance of Payments (BOP) recorded a deficit again. Furthermore, investment in strategic industries such as nickel was highlighted due to a lack of supporting research. The latest report focuses on the condition of the budget deficit, subsidy realization, nickel investment development, and the impact of the slowing government spending on the national economy.

The Ministry of Finance (Kemenkeu) reported that the State Budget (APBN) deficit until October 2025 had reached Rp479.7 trillion, equivalent to 2.02% of the Gross Domestic Product (GDP). This deficit emerged because the growth in revenue was slower than the growth in expenditure, signaling fiscal pressure that requires careful budget management. In line with this, the pace of government spending absorption also appeared slow, reaching only 70.6% of the total budget, with priority programs such as the Free Nutritious Meals (MBG) program reportedly seeing less than 60% absorption. This slow spending phenomenon hinders the fiscal multiplier effect and reduces the stimulus needed to boost economic growth toward the end of the year. In fact, Kemenkeu noted that the realization of energy subsidy and compensation payments only reached Rp315 trillion or 66.3% of the APBN outlook, partly due to the compensation payment mechanism needing review.

On the external side, Bank Indonesia (BI) reported that Indonesia's Balance of Payments (BOP) recorded a deficit of US$6.4 billion in Q3 2025, triggered by a deficit in capital and financial transactions. Although the current account remained in surplus, BI affirmed that the BOP condition remains under control, supported by high foreign exchange reserves (Forex Reserves), amounting to US$148.7 billion.

Meanwhile, in the strategic industrial sector, an Expert from the Bandung Institute of Technology (ITB) highlighted the weakness of investment in research and development (R&D) within Indonesia's nickel industry. Indonesia, as the world's largest nickel producer, is still considered dependent on foreign technology for nickel processing from the upstream to downstream sectors. The lack of research investment potentially hinders nickel downstreaming efforts that seek higher value-added, despite the government's continuous push for the sector.

These dynamics carry crucial implications for Indonesia's fiscal policy and investment opportunities. The widening APBN deficit and the BOP deficit signal a dual macroeconomic challenge: maintaining fiscal health while attracting foreign capital flows amid global uncertainty. The slowdown in government spending and low subsidy realization directly impacts real sector activity and public purchasing power, necessitating accelerated execution of delayed programs to provide optimal economic stimulus by year-end. For investors, a BOP deficit supported by high Forex Reserves offers a short-term stability signal, but the weakness in nickel research investment indicates that large business opportunities lie in technology transfer and domestic R&D development to increase the value-added of natural resource downstreaming.

Overall, this economic report highlights the expansion of both fiscal and external deficits as the main challenges that Indonesian authorities must address. Kemenkeu needs to manage the APBN deficit carefully and accelerate government spending to effectively boost slowing economic growth. On the other hand, the BOP deficit and the nickel research issue underscore the importance of deeper structural reforms, especially in enhancing industrial competitiveness and technological self-reliance. Business actors and investors should closely monitor the synchronization of fiscal and monetary policies and seek investment opportunities in sectors supporting downstreaming and technology research for sustainable growth.