Airlangga Proposes Emergency Ordinance Option if Budget Deficit Reaches 3%
Jakarta — Coordinating Minister for Economic Affairs Airlangga Hartarto has proposed a Government Regulation in Lieu of Law (Perppu) regarding the 2026 State Budget (APBN) to address mounting fiscal pressures.
The proposal is prompted by global geopolitical uncertainty, particularly conflicts in the Middle East, which have driven crude oil price surges and disrupted global oil supply dynamics.
Airlangga stated that the Perppu would facilitate changes to the 2026 APBN assumptions due to global geopolitical volatility. The budget deficit is expected to widen significantly owing to revised assumptions on Indonesian crude oil prices (ICP), exchange rates, and economic growth forecasts.
“We implemented a Perppu during Covid; these are several factors that need to be included in the Perppu being prepared. Regarding timing, of course, that is the President’s political decision. However, this is the content of the Perppu we prepared during Covid, which we are adapting. The differences involve state revenue, including emergency tax incentives on corporate and value-added tax in affected sectors without amending tax law,” Airlangga said during a Full Cabinet Session at the State Palace on Friday (13 March 2026).
“Import duties would see exemptions for certain raw materials to keep our exports flowing, then tax deferrals for SMEs and energy-intensive industries. We also have the potential to capture windfall gains from oil and gas non-tax state revenue and commodity revenues, which we can calculate for compensation. Typically, crude palm oil prices rise with fuel prices; if nickel, gold, and copper prices increase, we can, so to speak, impose additional taxes. Budget and deficit financing can exceed 3%. Cross-programme budgeting can be changed without the DPR, giving the government flexibility through this Perppu,” he explained.
“Energy assistance would continue, and emergency social aid would be added through presidential regulation, with continued state securities issuance and the use of supplementary budgeting,” he added.
Airlangga outlined three scenarios should crude oil and exchange rate assumptions change:
Scenario one: Indonesian crude oil (ICP) at US$86 per barrel, exchange rate at Rp 17,000 per US dollar (against the APBN assumption of Rp 16,500), with growth maintained at 5.3% and state securities at 6.8%, would result in a budget deficit of approximately 3.18%.
Scenario two (moderate): ICP at US$97 per barrel, exchange rate at Rp 17,300, growth at 5.2%, and state securities at 7.2%, would yield a deficit of 3.53%.
Scenario three (pessimistic worst case): ICP at US$115 per barrel, exchange rate at Rp 17,500, growth at 5.2%, and state securities at 7.2%, would result in a deficit of 4.06%.
“This means that with these various scenarios, maintaining a 3% deficit is difficult unless we cut spending and sacrifice growth. These are scenarios we need to discuss carefully,” Airlangga concluded.