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Indonesia pumps additional USD24B into energy subsidies

CNA – Indonesia’s Parliament yesterday approved a government request to boost energy subsidies by about USD23.8 billion to be able to keep some energy prices unchanged amid a global surge in inflation.

Additional energy subsidies worth IDR74.9 trillion (USD5.09 billion) were approved, as was additional compensation of IDR275 trillion for state energy firm Pertamina and utility PLN.

Despite the top-up, Finance Minister Sri Mulyani Indrawati said the government is considering raising electricity tariffs for some household consumers with larger power capacity.

The changes assumed Indonesian crude oil price at an average USD100 a barrel this year, compared with the original assumption of USD63 a barrel.

“There is a potential… that global growth will not be as strong as now. If global growth weakens with China in lockdown and the United States (US) hit by quite high interest rates, demand for commodities will decline and pressure on prices won’t be as high,” Sri Mulyani said.

A worker walks past a car at a state-owned Pertamina petrol station in Bekasi, Indonesia. PHOTO: CNA

The government has seen a windfall in revenue thanks to high commodity prices and the budget revisions will bring the fiscal deficit forecast to 4.5 per cent of GDP, she said, having previously estimated four per cent.

Maybank Indonesia economist Myrdal Gunarto called the budget changes “very good news” to support purchasing power. He predicted 2022 inflation will reach 3.99 per cent and economic growth could still top five per cent.

“We hope Bank Indonesia as the monetary authority will be more moderate in terms of raising interest rates, which will mainly respond to the global trend of higher interest rates,” he said.

The central bank has said its monetary tightening path will take into account the government’s subsidy and energy price policy.