Complete! 3 Scenarios for Government Budget Deficit Amid Global Turmoil
Jakarta, CNBC Indonesia – Coordinating Minister for Economic Affairs Airlangga Hartarto has reported to President Prabowo Subianto regarding budget deficit scenarios that are difficult to maintain at the 3% threshold.
This is driven by global geopolitical uncertainty, particularly the Middle Eastern conflict impacting a surge in global crude oil prices and disrupted oil supply in the market.
Airlangga stated that from various scenarios that have been simulated, all indicate that the budget deficit could breach the maximum limit stipulated in the State Finance Law, namely 3% of gross domestic product (GDP).
The scenarios he used to calculate this risk involve assessing the effects of the Middle Eastern conflict lasting between six to ten months, with average global crude oil prices rising to US$97 per barrel and US$115 per barrel.
Airlangga outlined several scenarios if there were changes to assumptions about oil prices and exchange rates. The three scenarios are as follows:
Indonesian crude price (ICP) of US$86 per barrel, exchange rate of Rp 17,000 per US dollar, while the budget assumes Rp 16,500 per US dollar, with growth maintained at 5.3%, government securities at 6.8% higher, the budget deficit is estimated to reach 3.18%.
The second moderate scenario with ICP of US$97 per barrel, exchange rate of Rp 17,300, growth of 5.2%, government securities 7.2% higher, the deficit reaches 3.53%.
The worst-case pessimistic scenario with ICP of US$115 per barrel, exchange rate of Rp 17,500, growth of 5.2%, government securities at 7.2%, the deficit reaches 4.06%.
“This means that with these various scenarios, it is difficult for us to maintain the 3% deficit, unless we cut spending and reduce growth,” Airlangga said during a Full Cabinet Meeting at the State Palace in Jakarta on Saturday (14 March 2026).
Therefore, Airlangga proposed the option of a Government Regulation in Lieu of Law (Perppu) regarding the 2026 State Revenue and Expenditure Budget (APBN) to respond to global conditions and projected budget deficit scenarios.
He stated that this Perppu would facilitate changes to assumptions in the 2026 budget due to global geopolitical turmoil. The budget deficit in 2026 is estimated to widen due to changes in assumptions about Indonesian crude price (ICP), exchange rates, and economic growth.
“We implemented a Perppu during Covid; several factors need to be included in the Perppu being prepared. Regarding timing, of course that is a political decision for the President, but this is the content of the Perppu we prepared during Covid, which we are adjusting. The difference is in state revenue, with emergency incentives for income tax and value-added tax in affected sectors without changing tax law,” Airlangga explained.
“For import duties, there is exemption of certain raw materials so that our exports continue, then tax deferment for small and medium enterprises and energy-intensive industries. We also have the potential to receive windfalls from non-tax revenue from oil and gas and commodities that we can count for compensation. Usually, when crude palm oil prices rise with fuel prices, nickel, gold, and copper rise, we can in quotation marks impose additional taxes. For budgeting and deficit costs, the deficit can be more than 3%. With this cross-programme budget that we can change without the Parliament, this Perppu gives the government flexibility for adjustments,” he elaborated.
“Energy transfer payments continue and emergency social assistance is added via Presidential Regulation, and issuance of government securities continues using the SAL mechanism,” he said.
As is known, global crude oil prices have soared significantly. When oil prices surge, the world becomes concerned about potential inflation heating up, which often creates economic slowdown and reduced consumer purchasing power.
Based on Refinitiv data from trading on Friday (13 March 2026), the Brent crude oil reference price was recorded at US$103.14 per barrel, strengthening 2.67% from the previous day’s trading. Meanwhile, the reference price for American crude oil, West Texas Intermediate (WTI), was recorded at US$98.71 per barrel, strengthening 3.11%. On a weekly basis, the performance of Brent and WTI reference prices for crude oil jumped 11.27% and 8.59% respectively.
The increase in crude oil prices is driven by production cuts by several major producers in the Middle East, amid the continued closure of the Strait of Hormuz – a vital global energy shipping route.
The surging global crude oil prices are also affecting the price of Indonesian crude oil reference, Indonesian Crude Price (ICP), which also serves as the budget reference.