Airlangga: Without Efficiency, State Budget Deficit Could Reach 4 Per Cent

Minister Coordinating for Economic Affairs Airlangga Hartarto has stated that the government will struggle to maintain the state budget deficit below 3 per cent of GDP if global volatility continues to increase.

The greatest pressure stems from the potential surge in oil prices due to conflict in the Middle East.

Airlangga outlined several scenarios assessing the impact of conflict between Iran, Israel and the United States. Simulations were conducted based on assumptions of conflict lasting for five months, six months, and up to ten months, with the duration of the conflict affecting the rate of increase in global oil prices.

Under the ten-month conflict scenario, oil prices are expected to reach approximately $130 per barrel, or around Rp2,195,440 per barrel, whilst prices are estimated to remain around $125 per barrel or approximately Rp2,111,000 per barrel by the end of December 2026.

“Our purchases in January-February were at $64.41 per barrel and $68.79 per barrel. These are actual figures, so actual performance is below the budget assumption of $70 per barrel,” Airlangga stated during the Full Cabinet Session on Friday.

Government simulations indicate that under a five-month conflict scenario, average oil prices would be around $90 per barrel, or approximately Rp1,519,920 per barrel. A six-month conflict scenario would result in average prices of around $97 per barrel, or approximately Rp1,637,136 per barrel.

The first scenario uses an assumption for Indonesian Crude Price of around $86 per barrel and an exchange rate of Rp17,000 per dollar, which is weaker than the budget assumption of Rp16,500 per dollar.

Economic growth is estimated to remain around 5.3 per cent, with returns on State Securities around 6.8 per cent. Under these conditions, the budget deficit is estimated to reach around 3.18 per cent of GDP.