Indonesia's Deficit Dilemma Amid Global Oil Shocks

Indonesia may hike its deficit cap above 3% of GDP due to sustained high oil prices from geopolitical tensions, says President Prabowo. Despite potential fuel price hikes, his administration plans a pivot to solar power, impacting subsidies and taxes.

In light of the ongoing U.S.-Israel war in Iran, Indonesia is considering a potential adjustment to its fiscal policies. President Prabowo Subianto, in a recent interview, stated that the nation may temporarily exceed the 3% deficit cap of its GDP if elevated oil prices persist.

Subianto emphasized confidence in maintaining stable fuel prices. However, if oil surpasses $120 per barrel for an extended period, raising fuel prices may become inevitable. The president's administration aims to phase out expensive fuel subsidies in favor of developing 100 gigawatts of solar energy within three years.

Additionally, Indonesia may introduce new taxation measures on commodities like palm oil to mitigate the budgetary impact of the oil price surge. Meanwhile, Subianto vowed to protect the free meals program, a considerable portion of this year's central government budget.