Worst-Case War Scenario: Airlangga Warns State Budget Deficit Could Hit 4 Per Cent

Coordinating Minister for Economic Affairs Airlangga Hartarto has outlined the worst-case scenario impacts of conflict between Iran against Israel and the United States on Indonesia’s state finances, particularly highlighting how the state budget deficit could reach 4.06 per cent of GDP.

During a Full Cabinet Meeting at the State Palace in Jakarta on Friday, 13 March 2026, Airlangga presented three scenarios should the conflict persist for six to ten months.

“In the worst-case, pessimistic scenario, with crude oil prices at $115 per barrel, our rupiah exchange rate at Rp 17,500 per dollar, growth at 5.2 per cent, and state securities yield at 7.2 per cent, the deficit reaches 4.06 per cent,” Airlangga told President Prabowo during the Full Cabinet Meeting.

Airlangga also reported two additional, relatively more moderate scenarios, though the state budget deficit in these cases is also assumed to exceed 3 per cent. The assumptions include crude oil prices at $90 per barrel should conflict last five months, $97 per barrel for six months, and $115 per barrel for ten months.

“When we factor this into our current state budget, here are the scenarios. In the first scenario, crude oil prices at $86 per barrel, exchange rate at Rp 17,000, with our current budget exchange rate at Rp 16,500, and maintaining our growth rate at 5.3 per cent. State securities yield would be higher at 6.8 per cent, resulting in a deficit of 3.18 per cent,” Airlangga said whilst presenting the first scenario.

In the second scenario, domestic crude oil prices are projected at $97 per barrel, rupiah exchange rate at Rp 17,300 per dollar, growth projected at 5.2 per cent, and state securities yield at 7.2 per cent. Under these assumptions, the state budget deficit reaches 3.53 per cent.

“Maintaining a 3 per cent deficit is difficult for us unless we are willing to cut spending and reduce growth. These are scenarios we may need to discuss in limited sessions,” Airlangga told Prabowo.