Indonesia will absorb shock from soaring oil prices using state budget
Energy subsidy, compensation budget at 381.3 trillion rupiah this year
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[JAKARTA] Indonesia will absorb the shock from oil price increases using its state budget and by raising the allocation to pay for fuel subsidies, its finance minister said on Monday (Mar 9).
Indonesia has budgeted 381.3 trillion rupiah (S$31.8 billion) for energy subsidies and to compensate state energy firm Pertamina and utility company PLN for their efforts to keep some fuel prices and electricity tariffs at an affordable level.
The budget is based on the assumptions that Indonesian crude prices average at US$70 a barrel and the rupiah exchange rate averages at 16,500 per US dollar in 2026.
However, oil prices jumped to more than US$100 a barrel on Monday amid fears of a prolonged oil supply shock caused by the ongoing conflict in the Middle East. A rush of investors to safe haven assets also hit the rupiah, which touched a record low of 16,990 a US dollar on Monday.
“Even if global oil prices rise, we will absorb (the shock) with the budget and we will control the impact as much as possible,” Finance Minister Purbaya Yudhi Sadewa told reporters.
The subsidy budget will likely increase, but the extent of the rise will depend on how long oil prices stay high, he said, adding that the government will assess the situation over the next month to formulate a clearer policy response.
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“After a month, we can better predict where oil prices are going and we can decide appropriate policy,” he said.
“We’re smart enough. Any adjustment we do will not disrupt economic growth.”
Deficit could potentially widen
Purbaya said in an interview with Reuters on Mar 3 that if crude prices reach US$90-to-US$92 per barrel this year, the budget deficit could swell to around 3.6 per cent of GDP, above the country’s legal deficit ceiling of 3 per cent of GDP.
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But under that scenario, the government would cut back on expenditure to ensure it complied with the deficit limit, he said.
While the government continues to assess the impact of the oil price surge on the budget, the fiscal deficit guideline for 2026 remains unchanged at 2.68 per cent of GDP, Deputy Finance Minister Suahasil Nazara told Reuters.
The country’s fuel supply is adequate and there is no plan to raise subsidised fuel prices at least until Eid al-Fitr, which falls at the end of next week, state news agency Antara reported, citing Energy Minister Bahlil Lahadalia.
Indonesia, the world’s largest palm oil producer, may revive a plan to launch B50 – a blend of 50 per cent palm oil-based biodiesel and 50 per cent conventional diesel – later this year because of surging crude prices, an energy ministry official said. REUTERS
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