Airlangga: High Oil Price Scenario Could Push Budget Deficit Above 3%

Coordinating Minister for Economic Affairs Airlangga Hartarto has reported to President Prabowo Subianto on scenarios of conflict between Iran, the United States and Israel in the Middle East that could potentially pressure Indonesia’s 2026 budget deficit.

He stated that from various scenarios that have been simulated, all indicate that the budget deficit could breach the maximum limit set in the State Finance Law, namely 3% of gross domestic product (GDP).

“This means that with various scenarios like these, it will be difficult for us to maintain a 3% deficit, unless we cut spending and sacrifice growth,” Airlangga said during a plenary cabinet meeting at the State Palace in Jakarta on Friday, 13 March 2026.

Airlangga said the scenarios he used to calculate this risk assumed the Middle East conflict would last between six and ten months, with global crude oil prices averaging between US$97 and US$115 per barrel.

In the lowest-risk scenario, he said if Indonesia’s reference crude oil price (ICP) moves to US$86 per barrel from the budgeted assumption of US$70, and the exchange rate moves to Rp 17,000 per dollar from the assumed Rp 16,500, with economic growth of 5.4% and a government bond (SBN) yield of 6.8%, the deficit would reach 3.18%.

The moderate scenario assumes ICP moves to US$97 per barrel, with an exchange rate of Rp 17,300, economic growth of 5.2%, and SBN yield rising to 7.2%, resulting in a budget deficit of 3.53%.

Under the worst-case scenario, with ICP at US$115 per barrel, exchange rate of Rp 17,500, growth of 5.2%, and SBN yield of 7.2%, the deficit pressure would reach 4.06% of GDP.

“These are several scenarios that we may need to discuss in a limited forum,” he emphasised.