Observer assesses energy subsidy reform as a way to strengthen fiscal credibility
Jakarta (ANTARA) - Senior Policy Advisor at the Centre for Policy Development (CPD), Ruddy Gobel, believes that energy subsidy reform could strengthen fiscal credibility while realising President Prabowo Subianto’s ambitions for an energy transition.
“Subsidy reform will help strengthen or signal to the market that the government is improving fiscal credibility, which will have a positive impact on the rupiah,” Rudey stated during an event titled “Fuel Subsidy Reform Through Transport Electrification” held in Jakarta on Thursday.
Ruddy noted that President Prabowo Subianto’s administration is in a better position to implement energy subsidy reforms due to the various modalities prepared by the two previous administrations. Various pilot reforms and policy trials, such as MyPertamina and biometric systems, have already been conducted.
“Our fiscal space is limited; therefore, its utilisation must focus on financing productive or transformative programmes to encourage investment and drive the energy transition,” he said.
On the same occasion, Anissa Suharsono, Senior Policy Advisor at the International Institute for Sustainable Development (IISD), stated that energy subsidy reform is becoming increasingly urgent. An IISD study showed that throughout the first quarter of 2024, Indonesia’s realisation of subsidy and compensation expenditure reached Rp118.7 trillion—a massive 266.5 per cent increase compared to the same period the previous year.
She noted that if Indonesia maintains its current subsidy mechanism, the government’s fiscal space will continue to be pressured, leaving the country vulnerable to global volatility. Even without a surge in global oil prices, fluctuations in the rupiah exchange rate can still exert significant fiscal pressure on the government.
“Through a more targeted subsidy mechanism, the government can provide greater support to those truly in need while simultaneously reducing the fiscal burden. This approach is also more likely to survive politically in the long term,” Anissa added.