Post by : Shakul

Indonesia’s Chief Economic Affairs Minister Airlangga Hartarto has warned that rising global oil prices could push the country’s budget deficit beyond its legal limit of 3 percent of gross domestic product (GDP) if geopolitical tensions continue to drive energy markets higher.

Speaking during a cabinet briefing to President Prabowo Subianto in Jakarta, Airlangga outlined several scenarios showing how prolonged increases in oil prices could significantly strain the 2026 state budget.

Indonesia’s 2026 fiscal plan assumes an Indonesian Crude Price benchmark of $70 per barrel. However, the minister noted that continued volatility in global markets — particularly due to tensions involving Iran, United States and Israel — could push oil prices well above that level during the year.

Under the first scenario presented by the government, if oil averages $90 per barrel for the next five months, the Indonesian rupiah could weaken to around 17,000 per US dollar, while economic growth remains at approximately 5.3 percent. In that situation, the budget deficit would widen to 3.18 percent of GDP, slightly exceeding the country’s statutory limit.

A second scenario assumes oil averaging $97 per barrel for six months, with the rupiah weakening further to around 17,300 per dollar and growth slowing slightly to 5.2 percent. This would increase the deficit to 3.53 percent of GDP.

In the most severe scenario outlined by officials, oil prices could reach $115 per barrel over the next ten months. If that occurs, the rupiah could drop to around 17,500 per dollar, and the deficit could expand to 4.06 percent of GDP, well above the legal ceiling set by Indonesia’s 2003 State Finance Law.

Despite the warnings, Finance Minister Purbaya Yudhi Sadewa said Indonesia’s economy remains resilient and capable of handling periods of high energy prices if fiscal and monetary policies remain disciplined.

He pointed to past periods of oil price spikes, including 2007–2008 and 2022, when crude prices surged above $100 per barrel but Indonesia’s economy continued to grow. According to the government, economic growth remained above 4.6 percent even during previous energy shocks.

President Prabowo also urged citizens to reduce fuel consumption and support government efforts to manage the impact of global energy volatility. The administration is currently working to strengthen energy security by expanding biofuel blending programs, accelerating renewable energy projects and developing strategic crude oil reserves.

Officials say there is currently no immediate plan to revise the national budget or increase domestic fuel prices, but prolonged high oil prices could increase subsidy costs and place further pressure on the country’s fiscal balance.

The Indonesian government is closely monitoring global energy markets while balancing economic growth targets with the need to maintain fiscal discipline and financial stability.

#world news #Global News #Indonesia News