Indonesia is tightening government spending toward year-end, ordering ministries and agencies to cut unspent travel allocations by 30% as higher oil prices and costly flagship programs put pressure on the budget.
The budget deficit widened to 1.24% of gross domestic product at the end of September, with Finance Minister Suahasil Nazara saying Friday the government remains on track to meet its full-year outlook for a deficit of around 2.8% of gross domestic product. Higher oil prices, stronger domestic demand for subsidized fuel and LPG, and a shift to monthly payments have pushed energy subsidy and compensation payments to 377 trillion rupiah ($21.1 billion) as of end-September, up more than 50% from the same period last year.
Indonesia’s average realized crude price is expected to rise further from the current $92 per barrel, already well above this year’s budget assumption of $70, Suahasil said. “And if it rises, then subsidies will also increase,” Suahasil said in a briefing. “All of this has a direct impact on the state budget, and we must certainly absorb these costs and ensure that payments are made.”
The Finance Ministry said in a circular dated Oct. 8 that the travel cuts apply to unspent allocations as of that date. Agencies must also defer spending on new vehicles, official housing and office renovations, prioritize virtual meetings and limit non-essential trips. The government is also accelerating tax refunds for businesses and plans to introduce a levy on sugar-sweetened drinks in the second half of 2027, targeting revenue of 1.7 trillion rupiah.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing