Economists: Indonesia must anticipate rising energy subsidies from oil price increases
Jakarta — Economists have assessed that the government must anticipate potential increases in energy subsidies due to rising global oil prices, which could place pressure on the state budget if not balanced with budgetary policy adjustments.
Mohammad Faisal, Executive Director of the Center of Reform on Economics (CORE), stated that the sector first affected by rising global oil prices is government energy subsidies.
“Everything will actually be affected, but what is most directly impacted first is, among other things, energy subsidies,” Faisal told the news agency in Jakarta on Monday.
He explained that energy subsidies are highly dependent on the assumed oil price in the state budget, which stands at around 70 USD per barrel. When the realised oil price exceeds this assumption, the government’s energy subsidy requirements will increase.
“Energy subsidies depend on the macro assumption in the state budget of around 70 USD per barrel. Now if we look at the average, it is already above 80 USD per barrel,” he said.
According to Faisal, with an assumed exchange rate of around 17,000 rupiah per USD and oil prices in the range of 80-90 USD per barrel, the additional energy subsidy requirement could increase significantly.
“The potential increase in subsidies could be above 100 trillion rupiah,” he stated.
He said the increase in subsidy expenditure could potentially widen the state budget deficit if not balanced with budget reallocation or refocusing.
Faisal added that widening the fiscal deficit could also potentially affect investor perception of Indonesia’s economic stability as well as rating agencies’ assessments of the country’s economic prospects.
Similarly, Bhima Yudhistira, Executive Director of the Center of Economics and Law Studies (CELIOS), also assessed that rising oil prices could potentially increase pressure on state spending through energy subsidies.
Bhima stated that simulations conducted by his institution showed that if oil prices remain in the range of 90-100 USD per barrel, additional energy subsidy requirements could reach 126 to 130 trillion rupiah.
Thus, the total additional burden of government spending including subsidies could reach approximately 309 trillion rupiah.
According to him, this condition could potentially add to the state budget deficit by around 204 trillion rupiah if not balanced with budgetary policy adjustments.
“An additional deficit of 204 trillion rupiah means the state budget deficit projection could widen to 866 trillion rupiah by the end of 2026. This is equivalent to 3.4 per cent of gross domestic product,” he explained.
Bhima assessed that the government could anticipate this pressure through budget reallocation to maintain energy price stability for the public.
“The solution for now could be to shift budget reallocation from programmes that are not yet priorities to additional energy subsidies,” he said.
The government had previously prepared several scenarios to anticipate the impact of geopolitical conflicts on the national economy, including the potential for rising global oil prices.
During a Full Cabinet Session at the State Palace on Friday (13 March 2026), Coordinating Minister for Economic Affairs Airlangga Hartarto outlined that in the worst-case scenario with global crude oil prices reaching 115 USD per barrel and the rupiah exchange rate at 17,500 per USD, the state budget deficit could increase to 4.06 per cent of GDP.