Global Oil Price Rises, Indonesia's 2026 Budget Deficit Risks Exceeding 6 Per Cent
Rising global oil prices are seen as posing significant potential pressure on Indonesia’s State Revenue and Expenditure Budget (APBN) for 2026. Should the surge in energy prices occur as a result of escalating global geopolitical conflict, the budget deficit is estimated to potentially exceed 6 per cent of gross domestic product (GDP).
This was stated by senior economist and founder of the Institute for Development of Economics and Finance, Didin S. Damanhuri, during a public discussion titled “Turbulent Geopolitics, Volatile Oil Prices” held online on Sunday (15 March).
He mentioned that several scenarios involving escalation of conflict between the United States and Israel against Iran could drive oil price surges with direct implications for Indonesia’s energy subsidy burden.
According to him, in the first scenario, global oil prices could reach 100 US dollars per barrel if the conflict ends with a major US strike on Iran. In such conditions, the oil price increase would raise energy subsidy burdens, which have been one of the largest components of the APBN.
“If average oil prices reach 100 dollars per barrel, then Indonesia will experience a large additional subsidy burden, so the APBN deficit could rise by approximately 240 trillion rupiah or around 4 per cent,” he explained.
Meanwhile, in the second scenario, the war is estimated to last longer, approximately one to one and a half months, if the launched attacks are successfully intercepted and the conflict continues. Under these conditions, Iran is estimated to gain the upper hand in the conflict, whilst global oil prices could surge to as much as 150 US dollars per barrel.
Should this scenario occur, energy subsidy burdens are estimated to surge to approximately 544 trillion rupiah, so the APBN deficit could be in the range of 5 to 6 per cent.
In the third scenario, the conflict is estimated to last even longer, potentially reaching two to five months if the United States and Israel suffer significant military and political losses. This condition is deemed capable of pushing global oil prices to breach the range of 180 to 200 US dollars per barrel.
“So the APBN subsidy could rise to 824 trillion with a deficit above 6 per cent, making it similar to what we experienced during COVID-19,” said Didin.
He assessed that the government must ultimately determine fiscal policy to address the potential pressure. He alluded to a signal from Finance Minister Purbaya Yudhi Sadewa, who mentioned the possibility of opening space for the APBN deficit above 3 per cent.
“Especially since the finance minister stated he would open opportunities for deficits above 3 per cent,” he said.
According to Didin, one policy option the government might pursue is issuing a Government Regulation in Lieu of Law (Perppu) to allow the widening of deficits from 4 to 6 per cent of GDP.
Such a step, he said, is related to the government’s efforts to continue a number of priority programmes, such as the Free Nutritious Meal Programme (MBG) and the Red and White Village Cooperative Programme (KDMP). He stated that the MBG programme budget in the 2026 APBN is estimated to reach 335 trillion rupiah, whilst the KDMP programme for building structures and procuring vehicles is estimated to require approximately 250 trillion rupiah in budget allocation.
However, Didin cautioned that the decision to widen the deficit through a Perppu carries significant risks to fiscal stability and market perception. He assessed that the implementation of these priority programmes has yet to prove it delivers significant impacts on economic growth.
He also warned of potential pressure from international rating agencies and global capital markets should budget management be assessed as deteriorating. For this reason, he believed the government needs to carefully consider the policy of widening deficits.
According to him, an alternative approach would be to maintain the deficit ceiling at the 3 per cent level by adjusting or implementing priority government programmes in phases.
“With such an approach, fiscal pressure is assessed as being more manageable,” he added.
Didin assessed that if fiscal discipline is maintained and APBN management transparency is improved, Indonesia’s economic growth still has the potential to be sustained above 5 per cent. However, he continued, if fiscal policy is not managed carefully, pressure from debt and economic growth slowdown could intensify further.
On the same occasion, Head of the Indef Centre for Macroeconomics and Finance, M. Rizal Taufikurahman, assessed that a surge in global oil prices poses a serious potential threat to Indonesia’s economy. Currently, global oil prices have approached and potentially could breach 100 US dollars per barrel should the upward trend continue.
According to Rizal, the oil price increase will increase pressure on energy inflation. This condition also risks widening fiscal deficits for net oil-importing countries, including Indonesia. Additionally, the surge in energy prices could potentially trigger volatility in exchange rates and global financial markets, which ultimately further burdens energy-importing economies.
He explained that energy price pressure impacts not only the fiscal sector but also other macroeconomic indicators, particularly household conditions. “If not appropriately anticipated, such a situation could further constrain economic growth,” he said.
Because of this, the government is assessed as needing to adopt policies capable of maintaining public purchasing power, particularly through more targeted social protection, price stabilisation, and strengthening policies to protect vulnerable groups and lower-middle-income communities.
Rizal also outlined scenarios regarding the impact of rising oil prices on economic growth. As long as oil prices remain in the range of 70–80 US dollars per barrel, the impact on national economic growth remains relatively stable. However, if prices rise to the range of 85–95 US dollars per barrel, Indonesia’s economic growth is estimated to experience pressure.