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Energy subsidies may be cut next year, budget talks suggest
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Motorcycles line up for subsidized RON-90 Pertalite fuel at a gas station in Bogor city, West Java, in August 2022, shortly before the government increased subsidized fuel prices to alleviate pressure on the state budget. (Antara/Arif Firmansyah)
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tatements from the finance minister and a budget planning document suggest the government may cut energy subsidies and compensation next year in a move analysts say would create fiscal space for the incoming administration to pursue new policies.
The government and the House of Representatives are currently drafting the 2025 state budget in a process set to last until September, before it becomes law.
“We will look at the [subsidized fuel] volume. What we’re going to ask for is to keep the discipline, so [the subsidy] does not rise – something like that. But it’s still very, very early,” Finance Minister Sri Mulyani Indrawati told reporters on Monday.
She explained that the proposed macroeconomic “positions” would be narrowed down to fix figures over the stretch of four months, including the allocations for energy subsidy and compensation.
The ministry presented its macroeconomic projection and fiscal policy draft (KEM-PPKF), which serves as the foundation for next year’s state budget plan, to the House on May 20, but lawmakers made no mention of subsidies or compensation during a House session to discuss the proposal on Tuesday.
Essentially also a subsidy of sorts, energy compensation is money paid by the government to electricity monopoly PLN and oil and gas company Pertamina in return for expecting the state-owned firms to sell their commodities below market prices.
The fact that the KEM-PPKF document notes that “energy subsidy and compensation reform” would yield Rp 67.1 trillion (US$4.2 billion) worth of fiscal savings indicates a possible cut.
