Indonesia's parliament this month approved a request from the government to increase energy subsidies because of rising commodity prices.

 

The energy subsidy is to increase by about 74.9 trillion rupiah ($5.11bn) to Rp208.9 trillion. "If this [subsidy] is not increased, the price of fuel and electricity will increase," said the country's finance minister Sri Mulyani Indrawati.

 

The Indonesian Crude Price (ICP) used in the 2022 state budget (APBN) was originally based on the assumed price of $63/bl. But the ICP value is currently above $100/bl, said Indrawati, adding that the economic price of fuel is now far above the assumed price used to allocate subsidies for kerosine, diesel, LPG and gasoline. A price adjustment was therefore requested to ensure the subsidies can cover the commodity price fluctuations.

 

Indonesia's state revenues in 2022 are expected to hit Rp2,266.2 trillion, an increase of Rp420.1 trillion from the initial APBN, mainly because of the rise in commodity prices.

 

The challenge is "allocating the additional income for the purpose of protecting the people, protecting the economy and protecting the state budget," said Indrawati. "With changes in commodity prices we get increased state income. But at the same time, the burden will also increase in terms of subsidies, compensation, social protection, mandatory spending and profit-sharing funds."

 

A portion of the revenue increase will also be used to reduce the state budget deficit to 4.5pc of GDP, said Indrawati. Indonesia's GDP growth is expected to be 5pc in 2022 and 5.2pc in 2023, according to the Philippines-based Asian Development Bank. This compares with an expansion of 3.7pc in 2021.