Indonesia's 2025 Economic Outlook: Stability Without Strength

The Indonesian economy in 2025 shows signs of stability but lacks the fundamental strength needed to achieve its ambitious growth target of 8% by 2029. As 2026 approaches, the need for a policy shift towards sustainable and effective solutions becomes evident. Inflation remains controlled at around 2.5–3%, the fiscal deficit is kept in check, and the rupiah exchange rate is stable. However, economic growth is a mere 5.2–5.4%. To meet medium-term targets, Indonesia should aim for growth above 6% under President Prabowo Subianto’s administration. Household consumption continues to be the main driver, while investments have yet to play a key role. The quality and efficiency of investments are a significant concern, as high ICOR figures (6.0–6.5) indicate the need for substantial investments for minimal returns. The financial sector also remains suboptimal. Despite loose bank liquidity (LDR 83–85%), productive lending is low, with a credit-to-GDP ratio of only 38–40%, much lower than regional counterparts above 60%. Many business activities, particularly in productive sectors, remain unfunded formally, while banks prefer safe instruments like government securities. The year 2026 presents various challenges for the government, from natural disasters requiring significant rehabilitation budgets to global economic uncertainties. A strategic and directed approach to economic policy coordination is essential for sustainable growth. Fiscal policy must be selectively and productively directed, with government funds in banks linked to productive credit disbursement. ICOR needs to be reduced by channeling investments into high productivity sectors. Spending priorities and fiscal incentives should focus on sectors with large multiplier effects, such as medium-scale industrial downstreaming, agroindustry, high-tech manufacturing, logistics, and production-supporting energy. Infrastructure investments also need to target projects that reduce production and logistics costs, not just increase physical capacity. Bank Indonesia is urged to expand conditional liquidity instruments prioritizing productive credit performance. Banks lending to SMEs, manufacturing, and exports should receive easy liquidity access, including utilizing part of their reserve requirements. SME financing needs reformulation, not just in funding, but in integrated business ecosystem and mentoring formation. The year 2026 will be a significant test for the government in setting a new direction for national economic policy.