2026 Economic Worst-Case Scenario: From Rupiah Weakening to the Threat of the State Budget Collapse

The conflict in the Middle East will have an impact on the state budget and the rupiah exchange rate. (Kemenkeu)

JAKARTA - The Indonesian government has launched 8 National Work Culture Transformation Grains as an initial response to the global economic shock. Although this step is considered appropriate, the GREAT Institute warns that the stability of the 2026 State Budget is still overshadowed by serious threats due to the escalation of the conflict between Iran and the Israel-United States axis.

Since the end of February 2026, the price of Brent crude oil has jumped to near USD 120 per barrel due to disruptions in the Strait of Hormuz. This condition is exacerbated by pressure on the exchange rate of the rupiah which is now in the range of Rp. 16,900 to Rp. 17,058 per US dollar.

Government Policy Package

In facing this shock, the government has implemented a number of strategic policies, including:

Implementation of Work From Home (WFH) for ASN.

Efficiency of mobility and official travel.

Refocusing ministry and agency spending.

The optimization of the Free Nutritious Meal (MBG) program has been extended to five days.

Strengthening the national energy efficiency agenda.

GREAT Institute Economic Researcher, Yossi Martino, assessed that the move was relevant as a first step. However, he emphasized the need for honesty that this is only the first phase.

"The question is no longer whether the government has acted, but whether the existing response package is sufficient to maintain the state budget and market confidence if global pressure persists for longer," Yossi said.

GREAT Institute Simulation

Based on the study of the GREAT Institute's Economic Desk team through the quadruple shocks model, there are three scenarios of the impact of the conflict on the budget deficit:

Scenario Oil Price (per Barrel) Estimated State Budget Deficit (% of GDP) Scenario 1 USD 93 - 97 3.25% - 3.55% Scenario 2 USD 95 - 105 3.40% - 3.80% Scenario 3 USD 105 - 120 3.80% - 4.30%

Another GREAT Institute Economic Researcher, Adrian Nalendra Perwira, explained that the third scenario is the most critical condition. "At this stage, administrative instruments are no longer sufficient. Options to raise subsidized fuel prices such as Pertalite (up Rp1,000/liter) and Solar (up Rp500/liter) are beginning to be needed to contain the deficit," he explained.

Strategic Recommendations

To maintain fiscal credibility in the eyes of investors and international rating agencies, the GREAT Institute encourages the government to prepare three response structures:

Debt Reform Task Force: Managing tenor risk, interest costs, and financing composition.

State Task Force for State Revenue Reform: Pursuing potential revenue that is not optimal (shadow economy and under-reporting).

Credit Rating Task Force: Maintain transparent communication with the market to prevent negative perceptions if the deficit is forced to exceed the 3% limit.

As a permanent solution, the GREAT Institute urges the government not to separate the fiscal response from the national energy security agenda. Strengthening energy storage, biofuel development, and primary energy diversification must be accelerated immediately.

"Indonesia cannot continue to enter a global crisis with a combination of high energy import dependence and a thin fiscal space," concluded Adrian.