Jakarta – The Institute for Development of Economics and Finance (INDEF) encourages the government to immediately transform energy subsidy policies to be more targeted and not sold on the open market as is happening now.
The 2023 inflation target of 3.3% assuming an Indonesian Crude Price (ICP) or crude oil of USD 90/barrel and the rupiah exchange rate of IDR 14,800/USD, presents a big challenge for the government in managing energy subsidy policies. There will be additional risks of burdening the budget for energy subsidies and compensation if world crude oil prices soar or the rupiah exchange rate weakens beyond these assumptions.
Head of the Center for Food, Energy and Sustainable Development Indef, Abra Talattov said, the transformation of the energy subsidy policy from an open mechanism to a closed and targeted subsidy needs to be carried out immediately so that additional subsidies and energy compensation do not cause the 2023 state budget deficit to collapse above 3% of revenue. gross domestic product (GDP).
“INDEF has made four simulations of changing fuel and LPG subsidies and compensation, to identify additional risks for the need for energy subsidies and compensation in 2023,” Talattov said in a written statement earlier this month. The assumptions in the simulation are changes in the ICP price variable which touches USD 110/barrel and the exchange rate reaches IDR 15,500/USD, and there are no changes in other state budget items, especially on the state revenue side.
INDEF’s four simulations of managing energy subsidy policy
The first simulation is that if the volume of subsidised fuel and LPG is in accordance with the 2023 quota, but there is a change in the ICP price to USD 110/barrel and an exchange rate of IDR 15,500/USD, then the potential for additional fuel and LPG subsidies and compensation is IDR 124.9 trillion, so it risks pushing an increase in the state budget deficit to IDR 723 trillion or 3.43% of GDP.
The second simulation, assumes the increase in the ICP price is the same as the first assumption, accompanied by the assumption that restrictions on subsidised fuel sales will begin to apply so that it has an impact on reducing the volume of subsidised fuel by up to 10%, namely Pertalite to 28.8 million kiloliters (Kl) and diesel to 14,4 million Kl. With these two assumptions, the potential for additional subsidies and compensation is IDR 53.8 trillion, resulting in a state budget deficit of IDR 652 trillion or 3.10% of GDP.
The third simulation, with the assumption of an ICP price of USD 105/barrel and an exchange rate of IDR 15,500/USD, with the same fuel and LPG quota but an adjustment to the selling price of subsidised BBM and LPG by 10%, the potential for additional subsidies and compensation is IDR 88.8 trillion thus making the state budget deficit of IDR 687 trillion or 3.26% of GDP.
The fourth simulation, with the same increase in ICP prices as the third assumption, but followed by a reduction in the subsidised fuel quota by 10% (as in the second simulation) and added to the policy of adjusting fuel and LPG prices by 10% (as in the third simulation), the potential for additional subsidies and compensation of IDR 25 trillion, making the state budget deficit IDR 623.2 trillion or 2.96% of GDP.
By looking at all the simulation results, Talattov temporarily concluded that the fiscal conditions for 2023 will be quite challenging in the face of risks of rising oil prices and a weakening of the rupiah exchange rate. (Hartatik)
