Russia-Ukraine Conflict Boosts World Oil Prices, The Government Is Asked To Postpone The IKN Budget To Increase Energy Subsidies

JAKARTA - The conflict between Russia and Ukraine, apart from having a bad impact on the global economy, will also increase the burden on the state budget (APBN) due to the increase in world oil prices which have reached 120 US dollars per barrel. This figure is of course far from the assumption of the state budget which is at the level of 63 US dollars per barrel.

Seeing this condition, the Vice-Chancellor of Paramadina University, Handi Risza, assessed that energy subsidies would increase. "This condition is a fiscal policy challenge that is not easy and must be overcome by the government and the House of Representatives (DPR)," said Handi in a discussion on the Didik J. Rachbini Twitter forum entitled "Fiscal Burden and the Russo-Ukrainian War", Monday, March 7.

Handi explained that the increase in world oil prices could cause Indonesia's fuel prices to soar, but the burden of subsidies would also increase considerably.

Therefore, said Handi, the government must prioritize APBN spending to sectors that are seen as being able to be delayed, such as the Ibu Kota Nusantara (IKN) budget.

"The initial plan of National Economic Recovery (PEN) funds for IKN amounting to IDR 127 trillion must be re-evaluated. Realization of the budget must be for sectors that are really needed by the community," said Handi.

On the same occasion, INDEF researcher, Eisha M. Rachbini revealed that the conflict between Russia and Ukraine could increase the risk of an energy crisis and the threat of inflation. The increase in world crude oil prices which has reached 122 US dollars per barrel (March 7, 2022) will have an impact on increasing production costs on the production side.

“The budget allocation for energy subsidies is around IDR 134.02 trillion, which consists of subsidies for certain types of BBM and 3 Kg LPG of IDR 77.54 trillion and electricity subsidies of IDR 56.47 trillion. The increase in oil prices will have an impact on the state budget, both in terms of income and expenditure," he added.

Eisha also reminded that if the price of crude oil is persistently at a high level above 100 US dollars per barrel, then the price of basic commodities will increase, rising prices are unavoidable.

"So the APBN needs to be managed appropriately and efficiently, by prioritizing economic recovery, maintaining people's purchasing power and economic growth," said Eisha.

In line with Handi, Lecturer at Mercu Buana University, Agus Herta S, argues, the conflict between Russia and Ukraine will also have a significant impact on the 2022 state budget. "Several macroeconomic assumptions made during the process of preparing the state budget have missed the target set," said Agus.

Agus also highlighted the increase in world oil and gas prices which would burden the state budget. This is mainly related to the amount of energy subsidies that have been determined, especially the 3kg LPG subsidy.

"In the midst of rising world gas prices which have an impact on rising non-subsidized gas prices, many people will switch to 3kg LPG, this will cause the 3kg LPG subsidy to swell. Energy subsidies in the form of electricity subsidies for the lower middle class will also increase in line with rising world oil prices," Agus added.