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View all search resultsIndonesia’s fiscal crisis in plain sight
Rising food prices coupled with rising fuel prices, could form a dangerous recipe for social unrest.
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An elderly person carries a staple food package on March 10, 2026, that was distributed at the courtyard of the Darussalam Palangka Raya Great Mosque in Palangka Raya, Central Kalimantan. The provincial administration held a low-cost market operation providing various food staples at prices below market rates to help stabilize supply and prices ahead of the Idul Fitri holiday. (Antara/Auliya Rahman)
O
n Monday morning, the rupiah plunged to the psychologically critical level of 17,000 per United States dollar. At the same time, global crude oil prices surged uncontrollably to around US$113 per barrel, far above the Indonesia Crude Price assumption embedded in the state budget. For a country that has already become a net oil importer, this combination poses a potentially existential threat to the health of Indonesia’s fiscal balance.
The shock arrives just as the government begins accelerating its flagship public programs. When the 2026 budget was drafted, policymakers appeared to be operating inside an optimism bubble, setting the rupiah assumption at 1,500 per dollar and oil at merely $70 per barrel.
The deviation now is too wide to dismiss as routine volatility. Each one-dollar increase in global oil prices no longer brings net fiscal gain, instead, it delivers fiscal pain, as the surge in subsidy obligations far outweighs additional government revenue from the oil and gas sector.
The situation is further complicated by cooling investor appetite for Indonesian government bonds. A failed sovereign debt auction earlier this year sent a warning signal that should not be ignored.
Markets are beginning to question Indonesia’s fiscal discipline. Investors are demanding significantly higher yields as compensation for currency weakness and the risk of widening deficits. If foreign investors begin withdrawing and moving toward safer assets, the government will face a harsh dilemma: pay increasingly burdensome interest costs or lose critical sources of development financing.
By conservative calculations, every $1 increase in global oil prices adds roughly Rp 10.3 trillion ($611 million) to Indonesia’s energy spending through subsidies and compensation schemes. On the revenue side, however, the same increase yields only about Rp 3.6 trillion in additional state income from oil and gas. The result is a fiscal gap, a net loss, of approximately Rp 6.7 trillion for every dollar rise in oil prices.
The oft-repeated claim that higher commodity prices automatically translate into a windfall for the national budget has become a misleading myth under current conditions. Indonesia’s domestic production, hovering near 600,000 barrels per day, pales in comparison with national consumption of roughly 1.7 million barrels per day.
