World Bank Says Indonesia's Fuel Subsidy Fiscal Burden More Enjoyed by Wealthy Groups

JAKARTA - The World Bank (World Bank) also highlighted the large fiscal pressure caused by the fuel subsidy policy (BBM) amid rising world oil prices.

In addition, the institution assessed that the benefits of energy subsidies are currently enjoyed more by high-income households.

In the June 2026 edition of the Indonesia Economic Prospects report, the World Bank said the surge in global oil prices had increased the burden on the state budget while narrowing the government's fiscal space, and the condition was considered to be a momentum for reforming fuel subsidies.

"The surge in global oil prices reveals the fiscal burden and the weakness of targeting fuel subsidies, where the richest 20 percent of households actually receive half of the total fuel subsidies," the World Bank wrote in its report, quoted Friday, June 12.

The World Bank also highlighted the large energy subsidy spending which reached around 1.6 percent of gross domestic product (GDP), and the value was considered quite large and made the government's fiscal space increasingly limited.

Therefore, the institution recommends a reform package that includes three main steps, namely, first, adjusting the price of fuel gradually and announcing it early so that the difference between the subsidized price and the market price can be reduced slowly.

Second, the government is advised to provide more targeted direct cash assistance to the poorest 40 percent of households to mitigate the impact of rising energy prices.

According to the World Bank, the budget needs for this assistance are relatively small because it is only about 10 percent of the total savings from fuel subsidies.

Third, savings from subsidy reforms need to be re-allocated transparently to strengthen social protection, support public investment, and help affected groups of people.

The World Bank estimates that fiscal savings from the scheme will continue to increase over time and in the first two years, savings are projected to reach around 1.3 percent of GDP and could increase to 2.1 percent after the price adjustment policy is fully implemented.

The institution also emphasized that the success of reforms not only depends on the design of policies, but also on the way they are implemented.

Meanwhile, the implementation of a gradual, clear public communication, the readiness of the National Social and Economic Single Data System (DTSEN), and transparency in the use of savings funds are considered important to build public confidence in subsidy reform.

More broadly, the World Bank believes that governments need to shift routine spending that has low returns towards public investment that has a greater economic impact.

Based on the World Bank's analysis, the public investment multiplier in Indonesia is in the range of 1.4, which means that every US$1 of government investment can generate economic activity worth around US$1.4 in a two-year period.

On the other hand, routine consumption spending is not considered to have a significant impact on economic growth, and the findings reinforce the importance of directing state budgets to investments that are also able to stimulate private sector activity.