Jakarta – In facing the condition of the realisation of the State Budget until the first quarter of 2024, as well as maintaining the sustainability of domestic fuel oil supply, fuel price adjustment is considered a logical step according to ReforMiner Institute.
ReforMiner’s Executive Director, Komaidi Notonegoro, stated that disproportionate pricing policies and a limited subsidy budget could pose significant economic and social risks.
“Although it is likely to be a fairly logical policy option, the government needs to anticipate the potential risks that can arise from the fuel price adjustment policy,” Komaidi said in an official statement Friday, June 28.
Fiscal challenges and the effect of the rupiah exchange rate
The weakening rupiah hurts Indonesia’s fiscal condition. Every IDR100 per US dollar depreciation can increase state revenues by around IDR4 trillion and state expenditure by around IDR10.20 trillion. As a result, the state budget deficit could increase by around IDR6.2 trillion for every weakening of IDR100 per US dollar.
ReforMiner also notes that an increase in oil prices (ICP) has a similar impact. Every USD1 per barrel increase in oil prices can increase state revenues by around IDR3.6 trillion and state expenditure by around IDR10.10 trillion, so the 2024 state budget deficit could increase by around IDR6.5 trillion.
The increase in crude oil prices and the weakening rupiah directly affect the energy procurement cost in Indonesia, including electricity, fuel and gas. According to ReforMiner’s simulation, every US$1 per barrel increase in crude oil prices will increase fuel procurement costs by around Rp150 per litre. Meanwhile, every rupiah depreciation of IDR100 per US dollar will increase fuel procurement costs by around IDR100 per litre.
Based on data, the average realization of Bank Indonesia’s middle exchange rate from January 1 to June 26, 2024, was IDR15,892 per US dollar, which is IDR892 per US dollar higher than the 2024 State Budget assumption. This weakening of the rupiah has increased fuel procurement costs by around IDR705 per litre.
Optimal energy prices are crucial in achieving macroeconomic targets, including state revenue targets in the state budget. Around 82 per cent of state revenue in the 2024 State Budget is planned to come from tax revenue, which is strongly influenced by the realization of economic growth (GDP). Around 50 per cent of tax revenue is contributed by the industrial and trade sectors, which have a strong relationship with energy availability.
“Observing the existing problems, ReforMiner considers that the government is currently facing a relatively difficult challenge in formulating optimal fiscal policy and energy price policy to anticipate the potentially negative impact of the weakening rupiah exchange rate,” said Komaidi. (Hartatik)
