Indonesia's Budget Deficit Is Widening. Here's What That Actually Does to the Bond Yields You Can Buy
6 min read
Loading...
6 min read
In the first half of 2026, Indonesia's government spent Rp196.5 trillion more than it collected in taxes and other revenue. That gap is called a budget deficit, and by the government's own latest projection, it will widen to around Rp734.3 trillion by the end of the year. If you hold an Indonesian government bond, or you are thinking about buying one, that number is not just a headline. It is the reason the yield on offer keeps climbing.
A budget deficit is simple arithmetic: government spending minus government revenue. When spending is bigger, the government is short, and it has to find the difference from somewhere else.
Indonesia's 2026 state budget (APBN), as approved by parliament, targeted a deficit of Rp689.1 trillion, about 2.68% of GDP. GDP, gross domestic product, is the total value of everything the economy produces in a year, and expressing the deficit as a share of it is how economists compare a country's borrowing need across different years and against other countries.
Through the first half of the year, government spending reached Rp1,656 trillion, up 17.8% from a year earlier, while revenue came in at Rp1,459.4 trillion, up 21.4%, according to the Ministry of Finance's own budget realization report. Revenue actually grew faster than spending in percentage terms, but spending started from a much bigger base, so the gap still widened to Rp196.5 trillion, 0.76% of GDP, by the halfway point.
Revenue for 2026 is on track to beat its own target. The problem is that spending is on track to beat its target by more.
Finance Minister Purbaya Yudhi Sadewa told parliament's budget committee in July that full-year spending is now projected at Rp3,942.4 trillion, 102.6% of the original budgeted amount, while revenue is projected at Rp3,208.1 trillion, 101.7% of target. The difference between those two overshoots is what pushes the deficit from its original 2.68%-of-GDP target to a projected 2.85%.
Two spending lines explain most of the overshoot. The government added roughly Rp132 trillion to its energy subsidy budget to cushion households from a global energy price spike tied to the conflict involving Iran. Separately, the Makan Bergizi Gratis (free nutritious meal) program for schoolchildren now costs the state around Rp19 trillion a month, making it the single largest item in the social spending budget. Other priority programs approved this year, including free health checkups, school renovations and the Koperasi Desa Merah Putih village cooperative rollout, add smaller amounts on top.
A government cannot simply print the difference. Indonesia finances its deficit mainly by selling Surat Berharga Negara (SBN), government bonds, to banks, pension funds, insurers, foreign investors and retail buyers. The government's net SBN issuance target for 2026, meaning new bonds sold minus bonds bought back or matured, was revised up to Rp799.53 trillion to cover the wider deficit, from an original Rp749.2 trillion.
That is only half the financing story, and it is the half a deficit number alone does not show you. On top of covering this year's new deficit, the government also has to refinance debt it sold years ago that is now coming due. Roughly Rp833.96 trillion of government debt matures in 2026 alone, the largest amount in at least a decade, a legacy of bonds issued in bulk during and after the pandemic, including debt from the 2020-2021 burden-sharing arrangement with Bank Indonesia. Every rupiah of that maturing debt has to be repaid or rolled into a new bond sale. So the total volume of bonds the government actually auctions through the year, its gross issuance, runs well above either the deficit figure or the net issuance target on their own.
More bonds hitting the market for buyers to absorb is more supply. If demand does not grow just as fast, sellers accept a lower price to move that supply, and a lower bond price means a higher yield, the annual return a bond pays its holder. Indonesia's benchmark 10-year bond started 2026 yielding about 6.04%. By 24 August, it had risen to 7.04%, according to Trading Economics' tracked market data.
Demand has stayed healthy enough to keep that rise gradual rather than sharp. At the 18 August auction, investors offered the government Rp84.76 trillion against a Rp34 trillion target, a bid-to-cover ratio of roughly 2.49 times. That is a sign buyers are still showing up in force, even as the government asks them to absorb more debt than planned. For the mechanics of how an individual auction sets that price, NetWort's earlier piece on government bond issuance and yield walks through a single auction step by step.
A higher benchmark yield means a Surat Utang Negara bought today, or a retail bond like ORI, SR or ST bought at the next offering, pays a higher fixed annual return than one bought in January. It also means a bond you already hold from earlier this year, at a lower yield, is worth less than face value if you tried to sell it before maturity, because newer bonds now pay more.
None of this is a signal to buy or sell any specific bond. It is a reminder that the yield printed on a government bond is not a fixed fact of nature. It moves with the government's own financing need, and that need is currently being pushed up by both a widening deficit and an unusually large pile of old debt coming due in the same year. NetWort's Macro Context page tracks Indonesia's benchmark bond yields alongside the BI rate, inflation and USD/IDR, so you can watch how the next auction result and the next deficit update move in relation to each other, instead of checking each number on its own.