To feed or fuel? Economists urge Indonesia to downsize free meals programme as oil prices soar

Economists urge Indonesia to scale back its free meals programme due to surging oil prices and fiscal strain on the economy. Read more at straitstimes.com.

JAKARTA – Some experts are urging the Indonesian government to scale back President Prabowo Subianto’s signature free nutritious meals (MBG) programme, which would help pare back government spending at a time of soaring energy prices amid escalating conflicts in the Middle East.

For 2026, the government has allocated a staggering 335 trillion rupiah (S$25.3 billion) to the MBG programme to feed nearly 83 million beneficiaries, including schoolchildren and pregnant women. This accounts for 1.3 per cent of the country’s gross domestic product (GDP) and consumes about 11 per cent of the national annual budget.

In January, before the war in Iran began, Citigroup already warned that Indonesia’s increased spending, including on the MBG programme, could put it at risk of breaching its 3 per cent fiscal deficit cap in 2026.

For decades, the Indonesian government has operated on a deficit – spending more on infrastructure, dams and civil servant salaries than it collects in tax revenue – and filling the gap by issuing debt to foreign and domestic investors. To prevent overspending and keep fiscal policies in check, a strict law limits the budget deficit to 3 per cent of GDP.

To provide more fiscal breathing room, Dr Piter Abdullah, policy and programme director at Jakarta-based think-tank Prasasti, suggested that the government adopt a more flexible approach to its strict 3 per cent annual budget deficit cap by maintaining a 3 per cent average over five years.

This is as fiscal strain on South-east Asia’s largest economy is expected to mount rapidly with global oil prices surging, especially since the government subsidises fuel at pump stations to keep prices relatively affordable for motorists.