Worst-Case Economic Scenario for Indonesia: Oil Price US$115, Budget Deficit 4.06%

Jakarta — Indonesia’s Coordinating Minister for Economic Affairs Airlangga Hartarto has outlined three scenarios for the Indonesian Crude Oil Price (ICP) amid turbulence caused by conflicts in the Middle East.

Airlangga revealed that elevated oil prices could push the state budget deficit above the current 3.18% target. According to his calculations, the first scenario assumes an average ICP of US$89 per barrel with an exchange rate of Rp17,000 per US dollar and sustained economic growth of 5.3%, which would result in a budget deficit of 3.18%, based on a state bonds yield of 6.8%.

“The second, more moderate scenario shows an oil price of US$97 per barrel, an exchange rate of Rp13,700 per US dollar, growth of 5.2%, and a higher state bonds yield of 7.2%, resulting in a deficit of 3.53%,” Airlangga explained during a Full Cabinet Session at the State Palace on Friday (13 March 2028).

In the worst-case or most pessimistic scenario, with oil prices at US$115 per barrel, an exchange rate of Rp17,500 per US dollar, and economic growth of 5.2%, the deficit could reach as high as 4.06%.

“This means that with these various scenarios, maintaining a 3% deficit is difficult unless we cut spending and reduce growth,” he stated.

Consequently, Airlangga has proposed amending the state budget. He believes the government needs to issue a Government Regulation in Lieu of Law (Perpu), similar to measures taken during the Covid-19 pandemic. Under the Perpu mechanism, the government would not require parliamentary consultation or approval.

“These are several factors that need to be included in the Perpu being prepared; the timing is naturally a political decision for the President, but the content of the Perpu we previously prepared during Covid will be adjusted differently—including revenue provisions with emergency tax incentives for income tax and value-added tax in affected sectors without changing tax legislation,” Airlangga explained.