Indonesia Moves Away $1.6B From Fuel Subsidies Toward Social Spending As Fiscal Pressure Rises

Indonesia’s Finance Minister Sri Mulyani Indrawati said the country is set to reallocate 24.17 trillion rupiah ($1.6 billion), or nearly 5%, of its fuel subsidy budget to social spending, which includes cash handouts to 20.65 million households, reported Reuters.

The move follows reports that the government has been considering hiking subsidized fuel prices to tackle rising fiscal pressure led by high global energy prices, it said.

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What Happened: Indonesia’s original energy subsidy budget for 2022 stood at 502 trillion rupiah, which has already been tripled. If fuel prices are not increased, the country’s authorities feel more funds would be required.

FM’s Take: Finance Minister Indrawati stated the reallocation of spending is set to be enacted this week and was decided after discussing the fuel subsidy policy with President Joko Widodo. "The people will get social assistance in order to increase their purchasing power," Sri Mulyani told an online news conference, according to Reuters.

Fuel Price Hike: The Finance Minister reportedly did not provide any details pertaining to the government’s plans for fuel price hikes. Last week, lawmakers from parliament's energy committee told Reuters the government may raise fuel prices by 30% to 40%. Such a step will add 1.9 percentage points to 2022's inflation rate, they said.