Careful watch: Motorists cross the Raja Haji Fisabililah bridge connecting Batam Island with surrounding islands. The Indonesian government is gauging what the rising price of crude oil might mean to its state budget, wary that it may be forced to act on it. — AFP
JAKARTA: The government will keep a watchful eye on crude oil prices, which are expected to surge by the end of this year. The Finance Ministry says it is prepared to carry out stress testing if needed to anticipate any impact on the state budget, particularly energy subsidies.
Goldman Sachs, Citigroup and others are predicting that the crude oil price will rise to over US$100 per barrel by 2024, following production cuts by Russia and Saudi Arabia, which many fear will cause slowed global growth and prolonged high inflation.
The ministry’s Financial Policy Agency (BKF) head of central macroeconomics policy Abdurohman said it has carried out some stress tests in the past to measure such impacts on the state budget and the most recent was completed in early 2022 when crude oil prices rose to around US$120 per barrel.
“In January 2022 we did some stress testing to see if the state budget would be impacted significantly by the movement of the oil price,” said Abdurohman on Monday.
However, the ministry has yet to determine the possible impacts of the expected oil surge this year. Abdurohman did not expect this year’s average oil price to touch the US$100 mark as projected by many analysts in the United States.
Given that the new budget was only agreed upon last week, he said that the ministry will not take the move until the start of next year, unless oil prices rise considerably.
By then, Finance Minister Sri Mulyani Indrawati will have ordered her team to work out some scenarios to anticipate the gush-using policy, Abdurohman said.
The Brent crude oil price rose sharply from US$86 per barrel on Aug 31 to US$92 a barrel on Tuesday.
Sri Mulyani and the House of Representatives have adjusted their projection of the country’s benchmark Indonesia Crude Price (ICP) to US$82 per barrel for next year, as seen in the 2024 state budget law that was passed last Thursday.
The figure was a tad higher than the US$80-per-barrel projection set in the proposed draft budget on Aug 16.
The higher oil price projection has prompted the ministry to raise the budget allocation for energy subsidies and compensation by 13.3 trillion rupiah (US$859.65mil) for next year, now totalling 339.26 trillion rupiah.
Regardless, the initial deficit figure of 522.82 trillion rupiah was kept by virtue of increasing the revenue target of 2.8 quadrillion rupiah, 21 trillion rupiah higher than what the government proposed on Aug 16.
Separately, state-owned Bank Mandiri chief economist Andry “Asmo” Asmoro said that increasing oil prices may lead to a widening deficit, especially if the increases are followed by flat commodity prices.
“We are a net importer of oil and gas, especially oil,” said Asmo on Tuesday, explaining what would play out if commodity prices remain indifferent to the oil swell.
“Therefore, the burden for subsidies will swell and that will potentially widen the deficit.”
He said that, under normal conditions, commodity prices get lifted along with increasing oil prices.
Last year, a surge in commodity prices allowed the government to obtain more revenue to weather the impacts of rising subsidy spending.
This, however, is not the case now given that the surge was caused by voluntary supply cuts from global oil producers, namely Saudi Arabia and Russia, Mandiri’s chief economist said.
Asmo said the ongoing oil price surge would not translate into a commodity price upswing. — The Jakarta Post/ANN
