Economist: B50 Implementation Strategic, but Requires Fiscal Discipline

The implementation of the B50 biodiesel programme is considered strategic but must be accompanied by fiscal discipline, according to M Rizal Taufikurahman, Head of Macroeconomics and Finance at the Institute for Development of Economics and Finance (INDEF). “B50 is strategically feasible for energy security, but fiscally it must be executed with discipline,” Rizal stated in Jakarta on Friday. In a macroeconomic context, he noted that the B50 policy has the potential to provide significant foreign exchange benefits by reducing diesel imports. The government estimates that import savings from B50 in 2026 could reach approximately Rp157.28 trillion, higher than the Rp139.8 trillion projected under the B40 scenario. However, Rizal assessed that this figure cannot automatically be considered a saving for the State Budget (APBN). This is because the savings occur in foreign exchange and energy imports, while programme costs arise through biodiesel incentives, funds from the Palm Oil Plantation Fund Management Agency (BPDPKS), potential energy compensation, and the risk of price differentials between crude palm oil (CPO) and fossil diesel. “In gross terms, the foreign exchange benefits of B50 are likely greater than the direct programme costs. But fiscally, the benefits are not automatically greater for the state budget,” he explained. He stated that the key to B50’s profitability lies in the price differential between CPO and diesel or gasoil. If global oil prices are high and CPO prices are relatively controlled, B50 will be more economical as imports fall, pressure on the current account balance eases, and the need for fuel subsidies or compensation can be reduced. However, if oil prices fall while CPO remains expensive, the price gap must be covered through biodiesel incentives. “Under those conditions, the quasi-fiscal burden on the BPDPKS rises and could ultimately become an indirect risk to the state budget,” he added. Rizal therefore stressed that the implications of the B50 policy for the state budget must be viewed cautiously. B50 could help reduce pressure on energy imports and maintain rupiah stability, but it also risks increasing the fiscal burden if BPDPKS funding is insufficient, palm oil export levies weaken, or CPO exports decline due to rising domestic demand. Consequently, he urged a balance based on fiscal discipline, including realistic reference pricing, periodic evaluations, subsidy transparency, and avoiding the mere pursuit of foreign exchange savings on paper while fiscal costs mount behind the scenes.