Capital market becomes the key to infrastructure budget constraints

This article has been translated by PwC Indonesia as part of our Indonesia Infrastructure News Service. PwC Indonesia has not checked the accuracy of, and accepts no responsibility for the content.

Investor Daily - Pasar modal jadi kunci keterbatasan anggaran infrastruktur

30 November 2024

Jakarta, ID – Amid the constraints of a limited infrastructure budget, the administration of Indonesian President Prabowo Subianto is committed to continuing national strategic projects (PSNs) through various financing innovations, including leveraging the capital market.

Coordinating Minister for Infrastructure and Regional Development, Agus Harimurti Yudhoyono (AHY), stated that the Indonesian government remains committed to developing infrastructure to establish connectivity that supports sustainable economic growth.

AHY made these remarks during his speech at the Forum Economic and Capital Market Outlook 2025 event in Jakarta on Thursday (28/11). In addition to the state budget, the government is continually promoting other innovative approaches to infrastructure financing. On this occasion, AHY invited all sectors of society to collaborate, including through the utilisation of the capital market.

"Let us seek breakthroughs. I have emphasised how Indonesia requires sufficient budget sources for infrastructure projects through various cooperation schemes. The capital market plays an important role, and we want to involve various companies, institutions, and individuals through the capital market," AHY stated in his press release in Jakarta on Friday (29/11/2024).

He noted that the government is currently focused on strengthening national connectivity as the backbone of economic growth. One of the priorities is to reduce logistics costs from 15% to 8% of the gross domestic product (GDP). AHY explained that this strategy is expected to enhance efficiency and national productivity, thereby opening up more investment opportunities and accelerating development across Indonesia, from Aceh to Papua.

In addition, special attention is being given to efforts to reduce Indonesia's Incremental Capital Output Ratio (ICOR), which currently exceeds six. Reducing the ICOR is crucial for ensuring efficient investment, with the goal of achieving an economic growth target of 8%. Coordinating Minister AHY explained that this is part of President Prabowo Subianto's broader vision, which must be successfully realised.

"I must express my appreciation for the Forum Economic and Market Outlook 2025 event organised today by AAEI and CSA Community, along with DEI. This event aims to find the best solutions, contribute to the search for capital, and identify budget sources for infrastructure development," AHY stated.

President Prabowo Subianto has instructed Finance Minister Sri Mulyani to withhold all budgets for government infrastructure development projects. As a result, the government is compelled to halt various major physical development projects.

Continue the giant sea wall

During the occasion, Coordinating Minister AHY stated that the government will proceed with the national strategic project (PSN) for the giant sea wall. Despite budget limitations, the construction will be carried out in stages, beginning in Jakarta and then extending to Cirebon, Central Java, and eventually East Java.

"The main focus is on Jakarta. We are simultaneously developing a long-term plan. The north coast does not stop at Jakarta; it extends to Cirebon, Central Java, and even East Java," he said regarding the development of the giant sea wall.

He emphasised that, despite the limited budget, the government will continue with the giant sea wall project as it is a long-term initiative. In this regard, AHY is encouraging all parties to invest in the construction of the giant sea wall.

AHY noted that investing in the giant sea wall will also help protect residents living along the north coast, who are often affected by tidal floods.

"We will attract various potential investors from both inside and outside the country. I am inviting the residents of Indonesia to invest in and help develop the giant sea wall together," AHY added.

Previously, Coordinating Minister for Economic Affairs Airlangga Hartarto stated that the estimated cost to construct the giant sea wall is around Rp700 trillion, with the section in Jakarta alone costing Rp180 trillion.

"The estimated cost ranges from around Rp600 trillion to Rp700 trillion, depending on its size. We have prepared the study," Airlangga said recently.

Airlangga mentioned that several investors have expressed interest in investing in the project. The plan is to construct the project using a public-private partnership (PPP) scheme.

The giant sea wall project will be constructed in several stages. "The stage that has commenced is in Jakarta, but there is a more extensive stage in Demak-Semarang," Airlangga added.

Budget absorption

On a separate occasion, Finance Minister Sri Mulyani Indrawati reported that the absorption of the infrastructure budget in the state budget had reached Rp282.9 trillion as of 31 October 2024.

"High competitiveness is one of the keys to positioning Indonesia as a developed country. Therefore, the #UangKita state budget fully supports enhancing competitiveness through the infrastructure budget, which has been absorbed by Rp282.9 trillion at the end of October 2024," Sri Mulyani stated on her official Instagram account.

This absorption represents 66.8% of the budget ceiling of Rp422.7 trillion. In terms of growth, the infrastructure budget absorption as of October increased by 17.8% year-on-year (YoY) compared to the same period last year.

A budget of Rp160.6 trillion has been allocated through the expenditures of various ministries and institutions. For example, Rp37.1 trillion has been allocated for road construction and development, Rp5.4 trillion for bridges, Rp3.7 trillion for drinking water provision systems (SPAMs), and Rp5.2 trillion for housing developments such as flats.

Additionally, Rp1.4 trillion has been allocated for railway tracks, Rp2.3 trillion for airports, Rp3.9 trillion for seaports, and Rp1.8 trillion for the national data centre (PDN) in Cikarang. Furthermore, Rp1.7 trillion is designated for the operation and maintenance of 4G BTS at 2,806 locations, Rp500 billion for internet access at 11,604 locations, Rp1.2 trillion for a 22-Gbps satellite, and Rp2 trillion for 43 units in the Palapa Ring.

The budget has also been transferred to regions, amounting to Rp72.8 trillion, which includes Rp5.16 trillion for road reconstruction, construction, and rehabilitation, and Rp17.5 trillion for SPAM construction.

The budget has also been utilised for financing initiatives, such as the Housing Financing Liquidity Facility (FLPP), which supports 165,880 houses and amounts to Rp13.7 trillion.

Additionally, there is state equity participation (PMN) for PT Hutama Karya valued at Rp18.6 trillion and funding for the State Asset Management Agency (LMAN) amounting to Rp7.5 trillion, designated for 126 national strategic projects (PSNs).

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