THE economic growth target for 2027 has been set: 6%. It is a highly ambitious goal in a world that is fragile and prone to volatility. Geopolitical conflicts are fueling waves of uncertainty and the threat of an energy crisis. Meanwhile, the engines driving Indonesia’s Gross Domestic Product (GDP) are straining. Individual consumption growth is uneven and driven by rising prices, while households with stagnant incomes are forced to dip into savings and take on debt. The fiscal engine is expanding because the government is borrowing heavily, with debt levels nearly quadrupling since 2014 to reach Rp 10,000 trillion by 2026. The export engine faces headwinds from geopolitical tensions and trade wars. The investment engine, meanwhile, remains hampered by overlapping regulations, convoluted licensing bureaucracies, and illicit levies.
Yet, President Prabowo Subianto, who is entering the third year of his administration, remains highly optimistic. Politically, Prabowo feels empowered as a strong leader, surrounded by loyalists who invariably endorse his policies. Almost all political parties have aligned with his administration, and his political supporters have secured positions across newly established agencies and state owned enterprises (SOEs). Mass protests against government policies have been easily quelled, as seen during the demonstrations on August 18 and 27, 2026.
In economic terms, Prabowo also considers himself highly successful. Although his speeches often employ negative rhetoric, he continues to be lauded with applause by officials within the circles of power. Furthermore, the government touts its achievements regarding food self sufficiency, energy independence, and the resolution of 100 national issues, alongside economic growth rates of 5.11% throughout 2025 and 5.45% year-on-year in the first half of 2026.
Suahasil Nazara, the Finance Minister who has just succeeded Purbaya Yudhi Sadewa on September 14, is confident that 2026 will conclude with economic growth exceeding 5.5%. “Regarding our growth projections, I am convinced that in the third and fourth quarters, the second half of the year, we can still achieve growth above 5.5%,” he stated during a press conference held by Bank Indonesia and the Ministry of Finance, as it was cited by Infobanknews.com on September 25, 2026.
The national economy is facing an increasingly complex global landscape fraught with uncertainty. Factors such as geopolitical shifts, trade fragmentation, trade wars, fluctuations in energy and commodity prices, changes in global interest rates, and supply chain disruptions can all exert pressure on economic stability. The world’s fragility is most evident in how geopolitical turmoil has stifled the global economy via energy channels (driving up global oil prices and triggering stock market declines) thereby trapping many nations in a cycle of instability. Amidst this fragile global environment, the ease with which armed conflicts erupt, as seen in Eastern Europe and the Middle East, has heightened geopolitical tensions and driven up global defense spending.
The World Economic Forum (WEF) has also identified a series of risks that could trigger a global financial crisis in the coming years. In the Global Risks Report 2026, there is concern that half of business leaders and executives view the world as standing on the “brink of the abyss.” Geoeconomic confrontation has surged to the number one risk position. Intense inter-state rivalry has also elevated armed conflict to a high-risk status, as have extreme weather events.
Rapidly rising oil prices severely strain the fiscal health of oil-importing nations like Indonesia; for every US$1 per barrel increase in oil prices, energy subsidy and compensation expenditures can rise by Rp 10 trillion, widening the state budget deficit by approximately Rp 6.7 trillion. Similarly, extreme weather events threaten to make access to financing increasingly costly and difficult for Indonesia.
Amidst this fragile global climate, Indonesia’s own economic outlook is far from rosy. The Jakarta Composite Index (JCI) remains depressed, awaiting further evaluation by MSCI in November 2026 regarding the effectiveness of reforms and the transparency of free-float (publicly held) share data. The rupiah is struggling against the US dollar, performing worse than the currencies of many developing nations. Analysts are noting that the crisis risks hinted at earlier in the year have now materialized into genuine threats.
According to the study conducted by Infobank Research Bureau entitled Financial and Banking Outlook 2027, there are ten risks and challenges that could hinder next year’s economic growth targets.
The first is the fiscal burden arising from the high interest-rate environment and the weakening rupiah. The state budget harbors a “time bomb” due to excessive spending that fails to generate a multiplier effect, all while being financed by debt. The government’s debt position has surged (rising from Rp 2,608.78 trillion in 2014 to Rp 4,778.60 trillion in 2019 and Rp 8,680.13 trillion in 2024, reaching Rp 9,637.90 trillion by 2025, and surpassing Rp 10,000 trillion mark this year. The cost of debt is placing an increasingly heavy burden on the state budget year after year.
The ratio of interest expenses to total expenditure has steadily climbed: from 6.85% in 2013 to 11.93% in 2019, and reaching 14.97% in 2025. Next year, interest expenses are set to rise by Rp 68.08 trillion, based on the 2026 outlook, to Rp 650.31 trillion, equivalent to 15.87% of the planned total state expenditure of Rp 4,097.19 trillion.
Meanwhile, in 2027, the government is scheduled to pay off maturing debt amounting to Rp 802 trillion and interest payments of Rp 650.31 trillion. Debt obligations alone account for 35.45% of total state expenditure. When combined with the substantial budgets allocated to three key institutions: the National Nutrition Agency (Rp 240 trillion), the Ministry of Defense (Rp 189 trillion), and the National Police (Rp 139.1 trillion), this figure rises to 49.32% of total state expenditure. Consequently, the fiscal space available to drive economic growth becomes severely limited.
The second is that there are risks regarding political stability and regional conflict. The central government is successively cutting regional financial transfer (TKD) funds: from Rp 857.6 trillion in 2024 to Rp 848.52 trillion in 2025, and further to Rp 693 trillion in 2026.
In 2027, the TKD will rise to Rp 735 trillion; however, Rp 51 trillion (66.23% of the Rp 77 trillion village fund budget) is earmarked to finance a central government program known as “Merah Putih” Village Cooperative (KDMP). This allocation covers maturing obligations related to the physical construction of outlets, warehousing, and KDMP facilities, including payments for principal installments, interest, margins, or profit-sharing.
Budget tightening, coupled with the massive rollout of the Free Nutritious Meal (MBG) program, has prompted some regions to voice grievances; they feel their natural resources are being siphoned off to the central government while they alone bear the brunt of the resulting environmental damage. Ongoing unrest in Papua could also inspire similar sentiments in Aceh and regions of Kalimantan (those are areas that already demonstrated defiance by flying their own regional flags during last August’s Independence Day commemorations).
Furthermore, the national political landscape is rife with speculation regarding a rift between Prabowo Subianto and former President Joko Widodo as they vie for influence. If this heated speculation persists, it could undermine national political stability and cause investors to adopt a “wait-and-see” approach.
The third is that there is the issue of extreme weather and natural disasters. The looming threat of El Niño endangers food prices, and the public, many of whom have already exhausted their savings and taken on debt (they have not been prepared to cope with the consequences). This is compounded by the risk of catastrophic events causing economic loss and loss of life, such as flash floods in Sumatra, forest fires in Kalimantan, and earthquakes in East Nusa Tenggara (NTT). The average annual economic loss due to natural disasters over the past decade has reached Rp 23 trillion. In contrast, the budget for the National Agency for Disaster Management (BNPB) stands at only Rp 491 billion, with an emergency disaster standby fund of merely Rp 5 trillion. If a major economic hub like Jakarta were paralyzed by a disaster, national resilience would almost certainly collapse; without the need for an attack by another nation.
The fourth is the erosion of civil liberties. This increasingly palpable phenomenon did not emerge overnight; rather, it has unfolded gradually since the Joko Widodo administration took office, manifesting through regulations, policies, the conduct of state apparatus, and social pressures that increasingly restrict the public.
The fifth is the erosion of the private sector’s role. Since the Joko Widodo administration, the state has taken an overly prominent role in economic development. This is evident in state budget (APBN) and state-owned enterprise (SOE) policies mobilized to support politically charged government programs, often resulting in a heavy debt burden. Now, President Prabowo Subianto is further strengthening the state’s role, even taking over tasks that could effectively be handled by private sector players.
President Prabowo seems not wanting to learn from the administration of Susilo Bambang Yudhoyono (SBY), which utilized the state budget to drive market demand. Fuel subsidies totaling approximately Rp 1,000 trillion over a decade successfully fostered a new middle class that stimulated market demand, creating a ripple effect that benefited the lower-income population. The banking industry also enjoyed an average annual credit growth of 21.52%. Economic growth surpassed 6% in 2007, 2008, 2010, 2011, and 2012. The average GDP growth rate from 2005 to 2014 stood at 5.71% per year.
Contrast this with the Jokowi administration, which emphasized a more active state role. Economic growth between 2015 and 2024 never reached 6%. Average GDP growth was only 4.21% per year; even excluding the 2020 pandemic year, when the economy contracted by 2.07%, the average growth rate was 4.91% per year.
The sixth is the weak law enforcement that causes business players and investors to withhold their investments. Weak rule of law leads to inconsistent application of regulations, widespread corruption, rampant illegal economic activities, unfair competition, and an increase in contract violations. These conditions drive up economic costs and hinder productivity, job creation, and economic growth, resulting in economic inequality and a decline in public trust in state institutions.
The government is attempting to attract these funds through “Patriot Bonds” issued by Danantara, backed by the legal protections of Law No. 4 of 2026 concerning the Development and Strengthening of the Financial Sector. However, given that law enforcement is often compromised by political maneuvering and used as a tool by those in power, few businesspeople or corrupt actors would be willing to step forward and purchase these bonds.
The seventh is the technological disruption and cyber threats. If not managed effectively, the combination of technological disruption and cyber threats can suppress productivity, exacerbate inequality, and pose risks to national economic stability and resilience. Technological disruption and the advancement of artificial intelligence (AI) are transforming the structure of the labor market. For Indonesia, where the workforce is dominated by individuals with a high school education or lower, AI poses a potential threat due to the displacement of jobs previously performed by humans, particularly routine, administrative, and digitally processable tasks.
The eighth is the decline of the middle class. The engine of consumption is driven by the middle-class population; however, government development policies and strategies have failed to generate a new middle class. Indonesia’s middle class has remained under pressure since 2019, squeezed by rising prices, eroded by debt repayments and burdensome policies, and drained by various taxes.
The size of the middle class has steadily shrunk, from 57.33 million in 2019, 56.34 million in 2020 to 53.83 million in 2021, 49.51 million in 2022, 48.27 million in 2023, and down to 47.85 million (17.13 percent) in 2024. After a further reduction of 1.1 million people in 2025, the middle-class population is projected to contract again in 2026 and 2027. This decline is driven by the depletion of their financial resources due to rising interest rates, rupiah depreciation, and hikes in fuel and energy prices that is expected to rise further as the government plans to cut energy subsidy budgets in 2027.
The ninth is the politicization and bureaucratization of Danantara. State-Owned Enterprises (SOEs) serve as a secondary engine, following the state budget (APBN), for realizing the president’s vision as a political leader. Consequently, SOEs struggle to escape politicization and bureaucratization, despite government measures ranging from the formation of holding companies to the establishment of the Danantara Investment Management Agency as an overarching umbrella for SOEs. Due to government mandates (not all of which are commercially viable) many SOEs suffer from poor performance and are subsequently forced to rely on the state for financial support.
However, because the state budget (APBN) is also strained for funds, SOE profits totaling IDR 120 trillion are being recalled this year from Danantara to the central government. This serves as compensation for the Whoosh high-speed rail debt that was originally intended to be borne by Danantara but subsequently assumed by the state budget through annual installments of Rp 1.2 trillion.
The association of state-owned banks (Himbara) is poised to become the primary source of funding for government programs. One example is the financing of 80,000 “Merah Putih” Village Cooperative (KDMP) buildings, valued at Rp 240 trillion, funds which were disbursed without regard for credit discipline or risk management, given the program’s uncertain success rate.
The tenth is the employment crisis. Since the COVID-19 pandemic, the labor market has been battered by a wave of layoffs. Tragically, this trend has persisted even as the government proudly posts economic growth figures in the 5% range. The Ministry of Manpower data shows layoff figures steadily rising: from 25,114 people in 2022 to 64,855 in 2023, 77,965 in 2024, and 88,519 in 2025. By August 2026, the number of laid-off workers had reached 53,490. These waves of layoffs and the scarcity of job opportunities are further suppressing public purchasing power, thereby impacting the performance of the real sector.
According to Statistics Indonesia (BPS), the number of informal workers has steadily risen: from 78.14 million in August 2021 to 80.24 million in August 2022, 82.67 million in August 2023, 83.83 million in August 2024, and 85.35 million in November 2025, representing 57.70 percent of the total employed population.
The dominance of the informal workforce diminishes the quality of economic growth and exerts sustained downward pressure on tax revenue. Yet, despite the scarcity of formal jobs, the government claims that as of February 2026, the number of openly unemployed individuals has dropped to 7.22 million, while the number of underemployed workers stands at 10.79 million.
Based on the 10 aforementioned warning signs, Infobank Research Bureau predicts the economic growth in 2027 under the three scenarios. In the pessimistic scenario, the economy grows by only 4.80%–5.10%, with an inflation rate of 3.50%–4.20%, an exchange rate of Rp 18,200 – Rp 18,800 per USD, a BI rate of 6.00%–6.50%, an IHSG (Jakarta Composite Index) of 6,800–7,100, and credit growth of 6.00%–8.00%.
In the realistic scenario, the economy grows by 5.30%–5.60%, with an inflation rate of 2.50%–3.00%, an exchange rate of Rp 17,300 – Rp 18,800 per USD, a BI rate of 5.25%–5.75%, an IHSG of 7,300–7,500, and credit growth of 9.00%–11.00%. Meanwhile, in the optimistic projection, the economy grows by 5.80%–6.00%, with an inflation rate of 2.00%–2.50%, an exchange rate of Rp 16,500 – Rp 17,000 per USD, a BI rate of 4.75%–5.00%, an IHSG of 7,600–7,800, and credit growth of 11.50%–13.00%.
What is more important than those three scenarios is that economic growth must be felt by the people who pinned their hopes on their chosen leaders. The government may well “take a gamble” amidst global uncertainty by targeting 6% economic growth for Indonesia by 2027. However, the public cares little for statistics that fail to reflect real life. What they need are affordable prices for basic necessities, job opportunities, and accessible, low-cost education and healthcare. It is better for the economy to grow at a rate below 5%, but it provides the benefits that are felt by all Indonesians, than to chase 6% growth that is enjoyed by only a few wealthy people, while the general public is forced to deplete their savings or go into debt just to meet basic needs.
Reshaping
Yet, President Prabowo Subianto, who is entering the third year of his administration, remains highly optimistic. Politically, Prabowo feels empowered as a strong leader, surrounded by loyalists who invariably endorse his policies. Almost all political parties have aligned with his administration, and his political supporters have secured positions across newly established agencies and state owned enterprises (SOEs). Mass protests against government policies have been easily quelled, as seen during the demonstrations on August 18 and 27, 2026.