MacroInsight  / Click here for full PDF version 
 Author(s):   Kefas Sidauruk 

• Oil prices at c.US$75-80/bbl or slightly above for a short period of time is likely to be manageable under current fiscal capacity.
• Prolonged oil price spike (3-5 months) could push Rupiah above Rp17k/US$ and fiscal deficit above 3% if there's no spending adjustment.
• Policy responses: 1) lower FX reserve, 2) higher purchase of gov't bonds by BI, and 3) non-subsidized fuel price adjustment.

Establishing the baseline assumption
We assess the potential impact of higher sustained oil prices on Indonesia's economy. Under our baseline, oil prices at c.US$75-80/bbl or modestly above for a short period of time is likely to be manageable, as past experience suggest that the adjustments were only limited to non-subsidized fuel prices. When gov't raised Pertalite to Rp10,000/liter in Sep22, Brent has stayed above US$100/bbl for several months, significantly above 2022 ICP assumption of US$45/bbl. Indonesia's 2026 state budget assumes ICP of c.US$70/bbl, and at current levels we still see our Rupiah base case of Rp16,800/US$ average holding.
Rupiah depreciation intensified during geopolitical driven oil shocks
We run several scenarios where oil price spikes are more sustained: starting at US$90/bbl, then rising in US$10 increments up to US$120/bbl, we draw on historical episodes of geopolitical oil shocks (e.g., Arab Spring, Iran sanctions, Russia-Ukraine) where the Rupiah tended to depreciate by roughly 2.5 times the strength of the DXY as oil risk premium rose and safe-haven demand for US dollars increased. The transmission from oil to Rupiah often works first through sentiment (war leads to higher US$ demand), and then through fiscal channels as subsidy costs mount. Under these scenarios, we estimate Rupiah depreciations of c.-2.4% to Rp17,200 on US$90/bbl, -4.2% to Rp17,500 on US$100/bbl, and as much as to Rp18,500 on US$120/bbl.
Fiscal deficit could exceed the threshold if gov't doesn't adjust spending
Without any adjustment to subsidized fuel prices like Pertalite, higher oil prices would significantly increase subsidy burdens. At US$90/bbl, we estimate additional subsidy costs of around Rp140tr (about 0.53% of FY26F nominal GDP), rising to c.Rp212tr (0.83% of GDP) at US$100/bbl, and c.Rp356tr (1.39% of GDP) at US$120/bbl. For context, our baseline forecast assumes a FY26 fiscal deficit of around -2.9% of GDP--based on +7.2% nominal GDP growth and a 9.5% tax ratio, without any adjustment in fuel pricing. Even a relatively mild oil shock to US$90/bbl could push the fiscal deficit above the -3.0% threshold unless the government either adjusts other spending, raises Pertalite prices, or gaining a meaningful revenue increase.
Potential drop in FX reserve, higher bond purchase, or fuel price adjustment as the likely policy response
If the scenarios materialize, we anticipate several likely policy responses: 1) Substantial use of FX reserves to defend the Rupiah (Jan26: US$154.6bn/-US$1.9bn mom), 2) higher purchase of gov't bonds by BI to contain upward pressure on yields - a trend that already visible as BI became a net buyer YTD (+Rp5.6tr/+US$331.9mn) by the end of Feb26 despite being a net seller of Rp125tr as of early Feb26, 3) adjustment of non-subsidized fuel prices (Pertamax in Feb26: Rp11,800/liter/-Rp550 mom/-Rp1,100 mom), and 4) potential pertalite price hike, although this is less likely in the near term given the gov't policy focus is economic growth.


Sumber : IPS