Jakarta \u2014 The Prasasti Center for Policy Studies has urged the\ngovernment to strengthen fiscal discipline and improve the efficiency of\nstate spending to maintain Indonesia\u2019s economic stability amid growing\nglobal uncertainty caused by escalating conflict in the Middle East.<\/p>\n
Gundy Cahyadi, Research Director at Prasasti, stated in Jakarta on\nTuesday that the escalation of the conflict between the United States\nand Iran has increased global geopolitical uncertainty.<\/p>\n
\u201cPrasasti estimates that tensions in the Middle East region have the\npotential to persist for a considerable period and carry implications\nfor global economic stability, including Indonesia,\u201d said Gundy.<\/p>\n
According to him, the escalation of the conflict in the Middle East\nhas the potential to create new pressures on the global economy,\nparticularly through surging energy prices.<\/p>\n
\u201cAt the beginning of the year, Indonesia\u2019s economic outlook was\nactually relatively positive with growth projections in the range of\n5.0\u20135.3 per cent. However, the conflict between the United States and\nIran has begun to alter those projections,\u201d Gundy explained.<\/p>\n
Global oil prices that have risen above $100 per barrel have\nincreased risks to the economies of energy-importing countries,\nincluding Indonesia, which still imports the majority of its oil\nrequirements.<\/p>\n
\u201cRising energy prices will increase production costs, undermine\nconsumer purchasing power, and place pressure on the rupiah\u2019s exchange\nrate,\u201d said Gundy.<\/p>\n
He stressed that if the surge in oil prices persists for a\nconsiderable period, the likelihood of Indonesia\u2019s economic growth\nfalling below 5 per cent becomes increasingly greater.<\/p>\n
\u201cThe government must already begin to shift from business-as-usual\nmode to crisis mode,\u201d he added.<\/p>\n
Indonesia\u2019s vulnerability to surges in global oil prices is also\nevident from a fiscal perspective. Indonesia\u2019s strategic oil reserves\nare currently estimated to be sufficient for only approximately 23\u201326\ndays, far below the standard recommended by the International Energy\nAgency (IEA), which stands at 90 days of net imports.<\/p>\n
In addition, rising oil prices have the potential to increase the\nburden of energy subsidies in the state budget.<\/p>\n
In government simulations, he said, if the average oil price reaches\napproximately $92 per barrel, the 2026 budget deficit could widen to\napproximately 3.6\u20133.7 per cent of gross domestic product (GDP),\nexceeding the fiscal deficit limit of 3 per cent.<\/p>\n
\u201cThis situation requires more careful fiscal management, particularly\nif global energy prices remain elevated,\u201d said Gundy.<\/p>\n
Piter Abdullah, Policy and Program Director at Prasasti, added that\nrising global oil prices will almost certainly drive pressure towards\ndomestic fuel prices.<\/p>\n
According to him, when global oil prices rise, the government\nbasically faces two policy options: restraining the increase in fuel\nprices through larger subsidies or allowing domestic prices to rise with\nthe consequence of increased inflation.<\/p>\n
\u201cIf oil prices rise, there is certainly pressure for domestic fuel\nprices to rise as well, unless the government is prepared to bear larger\nsubsidies,\u201d said Piter.<\/p>\n
However, the government\u2019s fiscal space to restrain rising energy\nprices also has limits. Efforts to keep fuel prices from rising too\nsharply have the potential to significantly increase the subsidy burden\nin the state budget.<\/p>\n
On the other hand, if the increase in fuel prices is released\ncompletely to the market, the impact can be felt directly on inflation.\nFuel prices make a significant contribution to inflation, both directly\nand through cascading effects on transportation costs, logistics, and\nother commodity prices.<\/p>\n
\u201cWith this rise in oil prices, inflationary pressure is likely to\nincrease. At the same time, the government\u2019s subsidy burden could also\nexpand, thus the pressure on fiscal conditions will intensify,\u201d he\nsaid.<\/p>\n
In a situation of heightened global uncertainty, Piter believes the\ngovernment needs to strengthen fiscal discipline and ensure that state\nspending is directed towards the most strategic programmes.<\/p>\n
External pressures such as surges in energy prices, global market\nvolatility, and potential economic slowdown require the government to be\nmore selective in managing the state budget.<\/p>\n
\u201cThe government needs to ensure that every rupiah of state spending\nis truly directed towards programmes that deliver the greatest economic\nimpact,\u201d he said.<\/p>\n
He added that in a situation of geopolitical conflict with the\npotential to persist for an extended period, fiscal policy can no longer\nbe implemented in a business-as-usual manner.<\/p>\n
Sharpening budget priorities and improving the efficiency of state\nspending have become important measures to maintain economic\nstability.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/prasasti-reminds-government-of-fiscal-discipline-amid-global-uncertainty-1773147166", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }