State Budget Deficit May Exceed 3%, Government Prepares Various Scenarios

JAKARTA. The government has begun to anticipate a potential widening of the State Budget (APBN) deficit that could surpass the 3% of gross domestic product (GDP) threshold. This condition is driven by rising global oil prices and pressure on the rupiah amid escalating geopolitical conflicts.

Coordinating Minister for Economic Affairs Airlangga Hartarto stated that several simulations indicate increasing difficulty in maintaining the fiscal deficit below this threshold.

“Maintaining the deficit (below 3% of GDP) is difficult unless we cut spending and reduce (economic) growth,” said Airlangga during a plenary cabinet meeting at the State Palace on Friday (March 13), as quoted by Bisnis.co.id.

Airlangga outlined several scenarios prepared by the government. In an optimistic scenario, when the Indonesian Crude Price (ICP) reaches USD 86 per barrel and the exchange rate stands at IDR 17,000 per USD, the deficit is projected to reach 3.18% of GDP.

If oil prices rise to USD 97 per barrel with the exchange rate at IDR 17,300 per USD, the deficit could widen to 3.53% of GDP. In the worst-case scenario, when ICP reaches USD 115 per barrel and the exchange rate hits IDR 17,500 per USD, the deficit could reach 4.05% of GDP.

Airlangga also mentioned the possibility of the government reissuing a Government Regulation in Lieu of Law (Perppu), similar to the one implemented during the COVID-19 pandemic to relax the fiscal deficit limit.

“We issued a Perppu during COVID. Several factors need to be prepared for such a regulation, including timing—it is ultimately a political decision,” he said.

The maximum deficit limit of 3% of GDP is stipulated under Law Number 17 of 2003 on State Finance. This provision was temporarily relaxed through Perppu Number 2 of 2020 during the pandemic, before being reinstated in the 2023 State Budget.

Impact of Oil Prices

Minister of Finance Purbaya Yudhi Sadewa stated that the government is still calculating the impact of rising global oil prices on the resilience of the state budget before making strategic decisions.

“We always calculate the impact of rising global oil prices on our state budget. If a decision is needed, we will first assess the impact—that’s all,” Purbaya said at the Ministry of Finance office in Jakarta on Friday (March 13), as quoted by Bisnis.co.id.

According to him, every USD 1 increase in Indonesian crude oil prices per barrel could add approximately IDR 6.8 trillion to the budget deficit. This requires the government to exercise greater caution in formulating future fiscal policies.

Purbaya also emphasized that any decision regarding potential changes to the deficit rule rests entirely with the President.

“I don’t know. I’m just carrying out the President’s directives. If there is an instruction, we will implement it,” he said.

Despite concerns that a widening deficit could trigger negative assessments from global credit rating agencies, Purbaya noted that the 3% deficit threshold is not an absolute benchmark when compared to other countries.

“Frankly, very few countries maintain a deficit below 3%. In fact, we are in a better position—our spending is close to 3%, and our growth is faster than many other countries,” he explained.

For comparison, Indonesia’s fiscal deficit last year stood at 2.92% of GDP, while Vietnam’s was around 3.6%.

The government affirmed that it will continue to implement prudent fiscal policies while closely monitoring global economic developments, particularly the impact of conflicts in the Middle East that have contributed to rising global oil prices. (KEN)