Chair of the Indonesian Hotel and Restaurant Association (PHRI) Hariyadi Sukamdani expressed serious concerns about the state of Indonesia’s domestic hotel business following the recent budget efficiency policy. According to PHRI’s analysis, these budget cuts could result in a substantial revenue loss of up to Rp12.4 trillion for national accommodation and hotel services.

Government Budget Efficiency Instruction

Indonesian President Prabowo Subianto formally issued a budget efficiency directive on January 22, 2025. This directive includes reducing official travel and meeting expenses, a sector that significantly contributes to the hotel industry.

Impact on Hotel Revenue

Hariyadi highlighted that the hotel sector heavily relies on government spending, particularly for official tourism and meetings. In 2024, the government accounted for approximately 40 percent of the total hotel market in Indonesia.

PHRI’s calculations indicate that hotels nationwide generated Rp24.8 trillion in profits from government contracts in 2024, broken down into accommodation revenue of Rp16.5 trillion and meeting fees of Rp8.2 trillion. If these government activities were cut by 50 percent, the industry could lose around Rp12.4 trillion.

Star Ratings and Regional Differences

Even mid-range hotels (3-star and 4-star) are set to be significantly affected, with their collected revenue from the government market approximating Rp14.1 trillion in 2024. Notably, even high-end 5-star hotels are dependent on government spending, generating about Rp2.4 trillion from this segment.

The impact is more pronounced in regions outside Java, where the hotel sector’s revenue from government spending can reach up to 70 percent, according to PHRI data.

Support for Budget Efficiency, but Concerns for Transition

Hariyadi supports the necessity of budget efficiency but emphasizes the current difficulties in shifting the hotel industry away from relying heavily on government contracts. He notes the absence of a clear policy framework that encourages domestic tourism as a viable alternative.

Without a strategic shift towards domestic tourism, Hariyadi fears that other businesses tied to the hotel sector could suffer. These include micro, small, and medium enterprises (MSMEs) and local agriculture, which supply goods and services crucial for hotels.

Economic Ripple Effects

The potential financial losses could not only impact hotel operations but also indirectly affect workforce efficiency. A decline in revenue could exacerbate an already challenging economic environment, potentially leading to increased bad debts in the banking sector.

Government Intervention Sought

Hariyadi strongly advocates for government intervention to mitigate the adverse effects of budget cuts on the hotel industry. This calls for policy solutions that promote domestic tourism and support the broader economy, ensuring the sustainability of the hotel and restaurant sector.