Indonesian President Prabowo Subianto delivers his annual State of the Nation Address, ahead of the country's Independence Day, in Jakarta, Indonesia, August 15, 2025. REUTERS/Ajeng Dinar Ulfiana/Pool/ File Photo

By Stefanno Sulaiman and Gayatri Suroyo

JAKARTA (Reuters) -Indonesia's President Prabowo Subianto on Friday proposed to parliament a $234 billion budget with a deficit forecast at 2.48% of GDP, while promising to try to gradually reduce the gap and balance the annual budget within three years.

The 2026 budget is designed to ensure the Southeast Asian country is strong, independent and prosperous, Prabowo said in his first speech on fiscal policy to parliament.

The budget proposal is the first developed by Prabowo's administration after he took office last October. The 2025 budget was prepared by his predecessor, Joko Widodo.

Prabowo proposed to spend 3,786.5 trillion rupiah ($234.39 billion) next year, or 7.3% higher than the latest estimate for 2025 spending. He targets revenues at 3,147.7 trillion rupiah, about 9.8% higher than this year's projection.

He said efficiency measures would need to be taken to reduce the fiscal gap and vowed to have no deficit by 2027 or 2028.

The government forecasts this year's budget deficit at 2.78% of GDP.

The budget proposal is based on an economic growth target of 5.4%, an inflation rate at 2.5% and the rupiah trading at 16,500 per dollar on average next year, along with several other indicators.

Prabowo has pledged to lift spending as he seeks to raise economic growth to 8% during his five-year term and deliver on his campaign platform of improving welfare and achieving food and energy self-sufficiency.

Prabowo proposed to spend 335 trillion rupiah ($20.74 billion) on his flagship programme to deliver free meals to 82.9 million students, children and pregnant women.

He allotted 171 trillion rupiah for the free meals programme this year, which he said has reached about 20 million recipients.

He also promised budgetary support to decarbonise Indonesia's electricity, saying he wanted the country to use 100% renewable power sources in the next 10 years or earlier. Indonesia currently relies on coal for more than half of its power generation.

In his address, Prabowo, a former defence minister and special forces commander, also said Indonesia must modernise its military hardware, adding his country had rare earths deposits that were vital to modern defence.

($1 = 16,155.0000 rupiah)

(Reporting by Jakarta bureau; Editing by Martin Petty)