High oil prices, CELIOS urges government to reallocate spending

Jakarta — The Executive Director of the Center of Economics and Law Studies (CELIOS), Bhima Yudhistira, has recommended that the government reallocate spending on several programmes to cope with surging oil prices resulting from the Iran-United States-Israel conflict, rather than raising fuel subsidy prices to ease fiscal pressure.

According to Bhima, this approach represents a preferable option to increasing subsidised fuel prices to alleviate fiscal strain. “Do not raise fuel prices; the public is not ready. Instead, conduct budget reallocations immediately,” Bhima stated when contacted by ANTARA in Jakarta on Monday.

Should oil prices reach $120 per barrel, the 2026 state budget deficit is estimated to widen to 3.6 per cent of gross domestic product (GDP) due to an additional burden of Rp340 trillion. If the conflict continues for more than one month and the government fails to increase energy subsidies and compensation to PT Pertamina (Persero), Bhima indicated that a fuel price increase would become the next option.

However, if fuel prices rise, food inflation could surge and reduce consumption among the lower-middle class. With limited fiscal space, Bhima advised the government to adjust spending on three programmes: the Free Nutritious Meals (MBG) scheme, Village/Kelurahan Cooperatives Red and White, and the food estate initiative.

Regarding the MBG programme specifically, Bhima suggested that criticism from global ratings agencies Fitch Ratings and Moody’s Investors Service could serve as justification for reducing this programme’s budget. Bhima also believes the government should urgently discuss budget adjustments with the legislature to mitigate the impact of oil price volatility on fiscal space.

Meanwhile, Finance Minister Purbaya Yudhi Sadewa has given the government one month to evaluate potential budget adjustments. He maintains that current average oil price developments remain below the maximum capacity of the budget. He has also ruled out plans to raise subsidised fuel prices amid rising global oil costs, contending that fiscal resources remain sufficient to absorb current economic pressures.