Indonesia Finance Minister Sri Mulyani Indrawati (Bloomberg filepix)

The government sees a 392 trillion rupiah (US$27 billion) boost to total expenditure to reach an estimated 3,106 trillion rupiah this year.

(May 19): Indonesia is increasing state spending to fund subsidies that would keep energy prices steady despite the global surge in fuel cost, helping quell inflationary pressures that risk derailing its economic recovery.

The government sees a 392 trillion rupiah (US$27 billion) boost to total expenditure to reach an estimated 3,106 trillion rupiah this year. That’s partly to account for a 56% jump in subsidies to the 208.9 trillion rupiah meant to absorb increases in energy costs for Indonesians, said Finance Minister Sri Mulyani Indrawati on Thursday.

Payments to compensate state-owned oil company PT Pertamina and state utility PT Perusahaan Listrik Negara also surged 15-fold from the initial estimate to 293.5 trillion rupiah to help keep fuel and electricity costs steady. “The state budget will remain as a shock absorber, hence the government has decided some administered prices will not be changed,” Indrawati said in the parliamentary committee meeting.

While a revenue windfall from the commodity exports boom should partially offset the spike in spending, the move is still set to drive the budget deficit to 4.5% of gross domestic product this year, she said. That’s a sizable jump from the roughly 4% estimated earlier, though still narrower than the 4.65% notched in 2021.
Southeast Asia’s largest economy is flexing its fiscal muscle at a time when its neighbours are struggling to tame prices without blowing out their government debt. Increased subsidies, which have been crucial in cooling inflation so far this year, should also carve out space for the central bank to keep interest rates at record lows to aid economic growth.

Highlights:

• State revenue may increase to 2,226 trillion rupiah this year, from the 1,846 trillion rupiah estimated in the budget.
• The oil price assumption in the state budget was adjusted to US$95-US$105 a barrel, from US$63.
• Yield of the benchmark 10-year government bond is seen higher at 6.85%-8.42% this year, while the rupiah exchange rate is estimated at 14,300-14,700 a dollar.
• The government is weighing a plan to raise power tariffs for consumers who use 3,000 volt amperes and higher.