By Stefanno Sulaiman

Indonesia's budget deficit is expected to widen to 2.85% of GDP this year, bigger than originally predicted, the government said on Tuesday, even as it aims to scale back spending on the president's flagship school meals programme.

The new estimate is close to the legislated deficit ceiling of 3% of GDP. It is also wider than both the government's previous estimate of a deficit of 2.68% this year and the 2025 budget gap of 2.81% of GDP.

Finance Minister Purbaya Yudhi Sadewa presented the full-year outlook at a hearing with parliament's budget commission, based on figures showing the deficit in the first half was 196.5 trillion rupiah ($10.9 billion), equivalent to 0.76% of GDP.

Indonesia's government typically spends more towards the end of a fiscal year because payments for some programmes are authorised after audits. For example, in the first half of last year the budget deficit was 0.84% of GDP.

The budget has faced pressure this year from higher energy subsidy costs due to the Iran war and capital outflows amid a global "risk-off" sentiment, including concerns over the high cost of the free meals programme.

Purbaya said total revenues were expected to be 3,208.1 trillion rupiah this year, 1.7% above the government's original target as income has been boosted by high commodity prices.

But spending is expected to be 2.6% more than previously expected at 3,942.4 trillion rupiah, which the finance ministry attributed in part to an additional allocation of 132 trillion rupiah for energy subsidies in response to the global surge in prices.

Said Abdullah, the head of the house's budget panel, said the total spending estimate included a 67 trillion rupiah cut in the budget for the free meals programme to 268 trillion rupiah, but did not incorporate potential further cuts because the government and parliament are still discussing the size of them.

Purbaya has previously said a further cut of 40 trillion rupiah is possible as part of an efficiency drive, but Abdullah said the budget panel was looking for double that.

The rupiah FX_IDC:USDIDR showed little reaction to the forecast of a wider deficit, trading around 17,980 per dollar in the afternoon.

($1 = 17,985 rupiah)