(Bloomberg) -- Indonesian lawmakers gave the official nod to the 2023 state budget that seeks to shrink the deficit to less than 3% of gross domestic product despite rising threat of inflation.

Parliament passed the budget into law in a plenary meeting on Thursday, endorsing a record spending of 3.06 quadrillion rupiah ($200 billion) next year to sustain growth set at 5.3%. Budget shortfall is set to narrow to 2.84% of GDP, lower than a projected 3.9% this year. 

Financing the budget would be a challenge on the prospect of higher cost of debt due to surging inflation and global policy tightening, Finance Minister Sri Mulyani Indrawati said in a speech to the parliament. 

“With the current world situation where interest rates increase and exchange rates depreciate, the steps to reduce the deficit to a low level should provide security for our state budget and the economy,” she said.

Intensifying price pressures prompted Bank Indonesia to deliver a surprise rate hike in August, and a bigger-than-expected rate increase this month, taking the benchmark borrowing costs to 4.25%. 

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