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Indonesia plans large energy subsidies for 2023

JAKARTA: Indonesia will allocate “very large” energy subsidies in 2023 to stabilise prices, even as the government...
08 Aug, 2022
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JAKARTA: Indonesia will allocate “very large” energy subsidies in 2023 to stabilise prices, even as the government predicts windfall revenues from high commodity prices to decline, its finance minister said on Monday after attending a cabinet meeting.

Southeast Asia’s largest economy this year has budgeted 502 trillion rupiah ($33.75 billion) in subsidies and compensations to keep some fuel prices and power tariffs unchanged and control domestic inflation amid soaring global energy prices.

“Next year’s (subsidies and compensations) will still be very large,” Finance Minister Sri Mulyani Indrawati said, adding that President Joko Widodo will unveil the figure when he presents his budget proposal to parliament on Aug. 16.

Jokowi, as the president is popularly known, also ordered for the 2023 budget to be designed with a deficit under 3% of GDP, Sri Mulyani said, compared with the 2022 deficit outlook of 3.92% of GDP. The 2023 budget will also be designed with flexibility to respond to international uncertainties, she said.

The main focus on spending will be for human development programmes, infrastructure - including the construction of Indonesia’s new capital city, and funding for general elections in 2024, she said.

However, she noted the government may no longer see a boost in revenues related to commodity exports and such windfall may decline, Sri Mulyani said, estimating around 328 trillion rupiah in tax and customs revenues from the commodity sector in 2022.

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She predicted Indonesian crude prices will fall to $90 a barrel next year, while coal prices could moderate to $200 a tonne and palm prices could go down to under $1,000 per tonne.

Exports from the resource-rich country had risen to record highs in recent months amid an upcycle in global commodity prices, which was one of the main reasons GDP growth accelerated to 5.44% in the second quarter, beating market expectations.

Jokowi has also ordered for a stress test for the economy against scenarios of worsening global conditions for this year and in 2023, which the finance ministry is currently preparing, she said.

Between January and July, Indonesia had a budget surplus of 106.1 trillion rupiah ($7.13 billion) or about 0.57% of GDP.

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