Indonesia will absorb shock from soaring oil prices using state budget

Indonesia will absorb the impact of rising global oil prices through its state budget, primarily by increasing allocations for energy subsidies. The government has allocated 381.3 trillion rupiah (around US$22.5 billion) to support fuel subsidies and compensate state-owned energy companies Pertamina and PLN for maintaining affordable fuel prices and electricity tariffs. This budget is based on the assumption that Indonesia’s crude oil price will average US$70 per barrel and the rupiah exchange rate will average Rp16,500 per US dollar in 2026.

However, global oil prices surged to more than US$100 per barrel amid concerns over potential supply disruptions linked to the ongoing conflict in the Middle East. At the same time, the rupiah weakened significantly, reaching a record low of Rp16,990 per US dollar. Finance Minister Purbaya Yudhi Sadewa stated that the government would manage the impact of these developments through fiscal measures, although the subsidy budget could increase depending on how long oil prices remain elevated.

The government will continue to monitor oil price movements over the coming months to determine the appropriate policy response. While higher crude prices could potentially widen Indonesia’s fiscal deficit to around 3.6% of GDP if prices reach US$90–92 per barrel, the government has emphasized its commitment to keeping the deficit within the legal limit of 3% of GDP by adjusting spending if necessary. Meanwhile, authorities confirmed that subsidized fuel prices will remain unchanged at least until Eid al-Fitr, and Indonesia is also considering accelerating the rollout of the B50 biodiesel program, which blends 50% palm oil-based biodiesel with conventional diesel, to reduce reliance on imported fuels.

Source : Reuters