Indonesian lawmakers agreed to a wider target range for the budget deficit for next year, with a likelihood that the shortfall could be smaller than previously estimated.

The 2025 budget deficit will be set at 2.29%-2.82% of gross domestic product, according to the parliamentary budget committee’s approval of key targets on Thursday. The government cut the lower end of the target range from an earlier 2.45% of GDP, as it lifted the goal for revenue collection next year.

Indonesia is seeking to boost state revenues by expanding the tax base and rolling out more measured fiscal incentives. The government also plans to streamline energy subsidies to free up some funding.

That should help keep the budget deficit below the legal limit of 3% of GDP and appease investors jittery about a budget blowout as President-elect Prabowo Subianto, who takes office in October, looks to fund his new programs, including a flagship US$4.3 billion (S$5.8 billion) free meal project.

Lawmakers likewise approved a target debt ratio of 37.82%-38.71% of GDP in 2025, an improvement from roughly 39% this year. Prabowo was said to be planning to raise the debt-to-GDP ratio by 2% a year over his five-year term - a move that would take it to a two-decade high of about 50%.

“We have agreed to provide the widest possible fiscal space for the next government to carry out its programs in line with its vision and mission,” Said Abdullah, chairman of parliament’s budget panel said during hearing.

Southeast Asia’s biggest economy seeks to grow by 5.1%-5.5% in 2025, in line with the average growth of the past decade. It kept this year’s inflation target of 1.5%-3.5% for 2025, and sees the rupiah appreciating to 15,300-15,900 per dollar from above-16,000 currently.

  - Bloomberg