Jokowi, as the outgoing leader is known, on Aug 16 is due to unveil fiscal plans that will encompass the first year of President-elect Prabowo Subianto, who takes office in October.

With the current year’s deficit ballooning as the weak rupiah pushes up financing and subsidy costs, analysts expect a 2025 shortfall at the high end of the proposed range of 2.3%-2.8% of GDP.

Investors want to know how the budget can ensure continuity for Jokowi’s policies while accommodating the next government’s big-ticket plans, including Prabowo’s signature pledge of a US$29-billion free meal programme for children.

Markets are also aware that Prabowo may revise the budget once in office, though he has denied reports that his team is thinking of removing legal limits on Indonesia’s budget deficit and its overall debt ratio.

“We do not think that it is in the Prabowo administration’s interest to rock the boat, particularly when markets remain jittery and concerned about fiscal discipline,” said Brian Lee, an economist at Maybank Securities Pte.

The 2025 budget, to be delivered by Jokowi on Friday afternoon in parliament after a separate state of the nation address, is key to boosting Southeast Asia’s biggest economy. His successor, Prabowo, aims to accelerate growth to 8% within his five-year term. That’s ambitious for an economy that has seen around 5% growth for the past decade.

“Markets will also be focused on the narrative around the fiscal math to gauge the consolidation path ahead,” said Radhika Rao, an economist at DBS Group Holdings Ltd.

Here’s what to watch for in the 2025 budget:

Debt financing

A big question is funding, with the current year’s budget shortfall now estimated at 2.7% of GDP, compared with an initial forecast of 2.29%. Revenue forecasts will be closely monitored to assess whether the deficit target can be met, according to Euben Paracuelles, a Nomura Holdings Inc economist in Singapore.

“The concern is there is no room for slippage given we are so close to the ceiling,” Paracuelles said.

Prabowo’s fiscal plans are making investors nervous and increasing scrutiny, notes Tamara Mast Henderson of Bloomberg Economics. Budget shortfalls of 3% of GDP would be up from an average of 1.8% since 2004, she noted.

That would still be small enough to keep the debt burden broadly stable — “but only barring significant shocks,” she wrote. “Running a wider gap with no guardrails looks risky.”

Indonesia’s “sound growth prospects, prudent fiscal policy settings and relatively light net external and government debt” led S&P Global Ratings to last month affirm Indonesia’s investment-grade BBB credit ratings, even with deficits of close to 3% of GDP.

But it warned that an excessive rise in debt or interest payments, or a structural slowdown in exports, could threaten those ratings.

Investors are concerned a weakening global outlook could weigh on Indonesia’s coffers, as could any delay to a planned value-added tax hike next year.

“A larger deficit tends to elicit a negative market response, as it could increase bond supply,” said Josua Pardede, chief economist of PT Bank Permata in Jakarta.

Human capital

With the incoming government emphasising human capital improvements, welfare programmes are likely to receive more attention in the 2025 budget. This marks a shift in priorities toward soft infrastructure from construction in the Jokowi era.

Finance minister Sri Mulyani Indrawati in June agreed to allocate up to 71 trillion rupiah (US$4.5 billion) in the budget for the gradual roll-out of the free meal programme next year. It remains to be seen how the initial phase will take shape, which will determine how much of a boost it will provide to the economy.

Any extensions of social assistance to help lower-income households and shore up purchasing power will also be watched, Maybank’s Lee said, as consumption has been lackluster in recent months.

Infrastructure and subsidies

Infrastructure projects will likely remain on the agenda to support Indonesia’s green energy transition and ambitions to become an electric-vehicle hub.

But the government may tweak its budget in favour of new priority programmes, raising the question of how much it can spare to continue building the new capital, which has struggled to attract private investment. Prabowo this week said he’s committed to keeping the Nusantara project on track.

Subsidies key to maintaining prices and domestic demand will also come under scrutiny as policymakers look to free up cash. Many Indonesians depend on subsidised fuel and cooking gas to help make ends meet.

“Investors are closely monitoring how government spending is distributed and allocated across different budgetary categories,” Bank Permata’s Pardede said.

“Channeling the budget deficit into productive investments and expenditures that promote long-term economic growth may lessen the negative impact on market sentiment.”