Airlangga outlines worst-case war scenario, budget deficit could reach 4.06 per cent

Jakarta — Coordinating Minister for Economic Affairs Airlangga Hartarto presented the worst-case scenario of the impact of conflict in the West Asia region on state finances, particularly the state budget deficit which could reach 4.06 per cent.

During a Full Cabinet Session at the State Palace in Jakarta on Friday, Airlangga presented three scenarios should the conflict between Iran, Israel and the United States persist for six months or even ten months.

“The worst-case scenario, the pessimistic one, with crude oil prices at 115 US dollars per barrel, our rupiah exchange rate at Rp17,500 per dollar, growth at 5.2 per cent, government bond yield at 7.2 per cent, the deficit would be 4.06 per cent,” Airlangga told President Prabowo during the Full Cabinet Session.

Subsequently, on the same occasion, Airlangga reported two other scenarios that were relatively more moderate, though the state budget deficit was also assumed to exceed 3 per cent. The assumptions included crude oil prices reaching 90 US dollars per barrel if the conflict persists for five months, then 97 US dollars per barrel if it lasts six months, and 115 US dollars per barrel if it extends for ten months.

“Now, if we incorporate this into our current state budget. These are the scenarios; first, the ICP at 86 US dollars per barrel, exchange rate at Rp17,000, our state budget exchange rate at Rp16,500, and maintaining our growth. So, we maintain growth at 5.3 per cent, government bond yield, the figure is higher at 6.8 per cent, then the deficit would be 3.18 per cent,” Airlangga said when presenting the first scenario.

For the second scenario, the ICP or domestic crude oil price was projected at 97 US dollars per barrel, rupiah exchange rate against the dollar at Rp17,300 per dollar, economic growth projected at 5.2 per cent, and government bond yield at 7.2 per cent, resulting in a state budget deficit of 3.53 per cent.

“A deficit of 3 per cent is difficult for us to maintain, unless we want to cut spending and reduce growth. These are some scenarios that we may need to discuss more narrowly,” Airlangga told Prabowo.