Jakarta — Indonesia’s government has proposed IDR 272.95 trillion (USD 15.6 billion) in energy subsidies under the draft 2027 state budget, a 20.1% increase from the government’s projected IDR 227.26 trillion in 2026, analysts said.
The sharpest increase is in subsidies for 3-kilogram LPG cylinders, which are projected to rise 26.2% to IDR 114.1 trillion from IDR 90.4 trillion. The Financial Note accompanying the draft budget attributed the increase to a weaker rupiah and higher subsidised LPG distribution, projected to reach 8.94 million metric tons.
EBC Financial Group Financial Markets Analyst Sana Ur Rehman said in a statement on Thursday, August 27, the combination of a weaker currency, LPG import prices linked to the Saudi Aramco Contract Price and higher distribution volumes could significantly increase the government’s fiscal burden.
“The 26.2% increase in the 3-kilogram LPG subsidy shows how several cost pressures can hit government finances at the same time,” Sana said.
Electricity subsidies are also expected to rise 17.8% to IDR 130.1 trillion. The increase is linked to higher electricity supply costs and consumption among subsidised customers, with costs affected by the rupiah exchange rate, Indonesian Crude Price (ICP) and increased gas-fired power generation.
Fiscal pressure could intensify if the rupiah and energy prices exceed the assumptions used to prepare the 2027 budget. The draft budget assumes an exchange rate of IDR 17,500 per US dollar and an ICP of USD 75 per barrel.
The rupiah stood at IDR 17,856 per dollar on August 18, according to Bank Indonesia’s Jakarta Interbank Spot Dollar Rate, while the ICP stood at USD 81.68 per barrel in July.
The government is banking on solar power development to reduce energy costs over the longer term. President Prabowo Subianto has said a solar power program of up to 100 gigawatts could generate annual savings of at least IDR 73.9 trillion by lowering electricity generation costs.
However, whether the energy transition will translate into lower fiscal costs remains to be seen. Indonesia’s Finance Ministry recorded IDR 233 trillion in combined energy subsidies and compensation payments in the first half of 2026, underscoring the continuing fiscal burden of keeping energy prices affordable. (nsh)
Banner photo: “Hanya untuk masyarakat miskin” or “Only for poor people” written on 3-kg subsidised LPG gas canisters. Taken on 20 January 2021. (Ani Fathudin/shutterstock.com)
