Indonesia to shift $1.6 bln portion of fuel subsidy budget to welfare programmes

Indonesia – Indonesia’s finance minister said Indonesia would reallocate 24.17 trillion rupiah ($1.62 billion), or almost 5% of its fuel subsidy budget, to social spending, including cash transfers to 20.65 million households.

Earlier it was said that the government is considering raising subsidized fuel prices to cope with growing budgetary pressure due to high global energy prices. Most likely, such a step was taken on this basis, in order to ultimately settle the budget, which is suffering due to the global economy.

Southeast Asia’s largest economy has already tripled its 2022 energy subsidy allocation from its original budget to Rs 502 trillion – about 16% of total spending plans – but authorities have said additional money may be needed if fuel prices do not rise during the year. It is also worth recalling that the economic situation is also complicated by the war between Ukraine and Russia, as well as the consequences of the covid-19 pandemic.

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“The people will get social assistance in order to increase their purchasing power,” Finance Minister Sri Mulyani Indravati said in an online press conference with Bank of Indonesia Governor Perry Varjiyo. Shri Mulyani said the redistribution of costs would be made this week and the decision was made after discussing the fuel subsidy policy with President Joko Widodo. She did not take questions and did not mention fuel price hike plans.

The government will also provide cash benefits to 16 million workers who earn less than Rs 3.5 million monthly. And regional governments will be instructed to use part of their fiscal transfers from the central government to subsidize transportation costs. This will help alleviate the overall situation in the economy.

Last week, members of the parliamentary committee on energy said the government could raise fuel prices by 30% to 40%, adding 1.9 percentage points to inflation in 2022.