JAKARTA: Indonesia is ready to adjust budget expenditure to keep its fiscal deficit below 3 per cent of GDP as the conflict in the Middle East threatens to drive up oil prices and pile more pressure on the economy, Finance Minister Purbaya Yudhi Sadewa said on Tuesday (Mar 3).
Even before the current crisis, the rupiah and the Indonesian stock index have been among Asia’s worst performers in 2026, with the currency weakening more than 1 per cent against the US dollar and the Indonesian stock exchange shedding as much as 7.5 per cent, putting President Prabowo Subianto’s ambitious economic goals in jeopardy.
The finance ministry has assessed that if the global oil price reaches up to around US$90 per barrel, it could widen Indonesia’s budget deficit to around 3.6 per cent of GDP, Purbaya told Reuters in his first one-on-one interview with foreign media since he took office last year as a surprise replacement for the respected veteran Sri Mulyani Indrawati.
Sri Mulyani’s conservative fiscal policies were long seen as a bulwark for the financial discipline that has underpinned investor confidence in the G20 economy since the Asian financial crisis.
Purbaya was seen as a pro-growth replacement appointed to achieve Prabowo’s 8 per cent GDP growth target, raising investor concerns about fiscal stability.
“Assuming the worst case, if the oil price goes as high as US$90 to US$92 per barrel, in those conditions, without adjusting our current budget, the deficit will increase to around 3.6 per cent of GDP,” he said.
The 2026 budget assumed a domestic crude oil price of US$70 per barrel.
“Of course, we’ll cut expenditure that creates the least impact to the economy,” he said, adding that the ministry has already drawn up contingency plans.
Brent crude reached a 14-month high at US$82.37 per barrel in the wake of the air attacks against Iran, US$10 higher than Friday’s close. US crude hit an 8-month high of US$75.55 per barrel.
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