Indonesia expects fiscal pressure from high global fuel, food prices

  • High global commodity prices have helped Indonesia book a strong fiscal position, but its budget will face pressure from inflationary shocks in coming months as the government keeps fuel prices steady, the finance minister said.
  • Net oil importer Indonesia has made state energy firm Pertamina keep prices of its most widely used fuels unchanged, despite surging global oil prices due to the Russia-Ukraine war.
  • The country has also left unchanged electricity tariffs and liquefied petroleum gas prices for households.
  • The cost of keeping prices stable, however, has yet to be reflected in the latest budget report, which only covered the first two months of 2022 and showed a IDR19.7tr budget surplus due to strong revenue collection. That compared with a IDR63.3tr deficit in the same period in 2021.
  • “On the one side, our budget now is looking quite positive, but the budget will have to work much harder to protect the society from the shocks coming from commodity prices,” Finance Minister Sri Mulyani Indrawati said, adding that spending, especially on subsidies, will rise.
  • Southeast Asia’s largest economy has allotted IDR134tr for energy subsidies in 2021. It spent IDR21.7tr rupiah in Jan 22 and Feb 22. On top of subsidies, the government typically compensates Pertamina and state power utility PLN for losses from certain types of sales.
  • Sri Mulyani said the government still owes Pertamina and PLN IDR109tr in compensation from 2020 and 2021.
  • Separately, Pertamina’s chief executive Nicke Widyawati told parliament demand for subsidised diesel fuel is expected to reach 16 million kilolitres in 2022, 14% above quota, due to improving economic activity and targeted subsidies amid widening price disparity.

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