Indonesia pumps additional $24 bln into energy subsidies

2 minute read

A worker walks past a car at a state-owned Pertamina petrol station in Bekasi, on the outskirts of Jakarta, Indonesia, May 31, 2020. REUTERS/Willy Kurniawan

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  • Revised budget sees deficit at 4.5% of GDP
  • Govt assumes Indonesian average crude price at $100/barrel
  • Total spending to reach 3,106 trln rupiah

JAKARTA, May 19 (Reuters) - Indonesia's parliament on Thursday approved a government request to boost energy subsidies by about $23.8 billion to be able to keep some energy prices unchanged amid a global surge in inflation.

Additional energy subsidies worth 74.9 trillion rupiah ($5.09 billion) were approved, as was additional compensation of 275 trillion rupiah 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.

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The changes assumed Indonesian crude oil price at an average $100 a barrel this year, compared with the original assumption of $63 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 U.S. hit by quite high interest rates, demand for commodities will decline and pressure on prices won't be as high," Sri Mulyani said.

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% of GDP, she said, having previously estimated 4%. read more

Myrdal Gunarto, Maybank Indonesia economist, called the budget changes "very good news" to support purchasing power. He predicted 2022 inflation will reach 3.99% and economic growth could still top 5%.

"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.

Details for new 2022 budget:

($1 = 14,715.0000 rupiah)

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Reporting by Stefanno Sulaiman and Gayatri Suroyo Editing by Ed Davies and Kanupriya Kapoor

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