Global Oil Prices Surge, Potential Impacts on the State Budget
The surge in global oil prices is causing concerns about domestic fiscal pressures. The room to maintain the state budget deficit below the 3% threshold is becoming increasingly challenging. For context, global oil prices have reached around US$140 per barrel.
Economist from the Center of Reform on Economics (CORE), Yusuf Rendy Manilet, outlined several scenarios for global oil price movements and their impacts on Indonesia’s state budget deficit. The first scenario is a rapid de-escalation, meaning that after touching US$140, prices quickly drop to US$80–85 in the near term. In this case, the annual average could still be maintained around US$85.
Under these conditions, the additional subsidy burden would be relatively limited, and the deficit could still be kept below 3% of GDP, at around 2.6%–2.7%. “But to be honest, the probability of this scenario is low because there are no strong signals of reduced global tensions,” Yusuf told Media Indonesia on Sunday (5/4).
The second scenario is a gradual correction. In this case, global oil prices remain high in the near term, then drop to around US$100 in mid-year and approach US$90 by year-end.
In this scenario, Yusuf said, the annual average price would rise to around US$95–100. The additional subsidy burden could be in the range of Rp150–160 trillion. “The deficit would move very close to 3%, around 2.9%. This is a very fragile position with almost no buffer room,” he stated.
The third scenario, according to Yusuf, is the most realistic at present, namely prolonged high prices. In this case, oil stays at US$130–140 until mid-year, then drops to around US$100. Under these conditions, the annual average could exceed US$105.
In such a situation, the additional subsidy burden would approach Rp200–230 trillion, and the deficit could breach 3%, potentially reaching 3.1%–3.2%. This means the fiscal limit could be violated in the relatively near term.
The fourth scenario is extreme escalation, where prices remain above US$140 for longer. In this case, Yusuf said, the annual average could exceed US$110, the subsidy burden would surge by more than Rp250 trillion, and the deficit could reach 3.3% or more.
“Especially if the exchange rate weakens as well. This is already entering a zone of serious pressure on fiscal credibility,” he added.
“From all these scenarios, the main conclusion is quite clear. Without policy adjustments, particularly on the energy side, keeping the deficit below 3% will be very difficult, unless we are in the optimistic scenario which has low probability,” he concluded.
The Indonesian House of Representatives (DPR RI) assesses that the government needs to consider adjusting fuel prices (BBM) to reduce the current fiscal burden, which is already under severe pressure.
Adjustments cannot be made drastically. With oil prices at US$140 and an exchange rate around Rp17,000, the economic price of BBM could be far above current levels.