JAKARTA - Coordinating Minister for the Economy Airlangga Hartarto warns that the 3 percent state budget deficit limit is difficult to maintain if the war prolongs and pushes oil prices to soar.
In a cabinet meeting at the State Palace, Friday, March 13, Airlangga also opened the option of economic Perppu if fiscal pressure worsened.
Airlangga explained three oil price scenarios. In the first scenario, ICP is 86 US dollars per barrel, the exchange rate is Rp17,000, economic growth is 5.3 percent, and the interest rate on government securities is 6.8 percent, the deficit is estimated at 3.18 percent.
In a moderate scenario, with an ICP of 97 US dollars, a Rp17,300 exchange rate, 5.2 percent growth, and a yield of 7.2 percent, the deficit rises to 3.53 percent. The worst scenario is heavier. If the ICP touches 115 US dollars, the rupiah exchange rate is Rp17,500, growth of 5.2 percent, and the yield remains at 7.2 percent, the deficit is projected to exceed 4.06 percent.
"This means that with these various scenarios, the 3 percent deficit is difficult for us to maintain, unless we want to cut spending and cut growth, Mr. President," said Airlangga.
He said the realization of the January and February oil purchase price was still below the assumption of the State Budget, respectively 64.41 US dollars and 68.79 US dollars per barrel. However, if the conflict lasts five, six, up to ten months, the pressure on the State Budget will increase.
During the forum, Airlangga also said that the government had prepared a Perppu during the Covid-19 pandemic and a similar pattern could be adjusted if the situation worsened. He alluded to the possibility of emergency income tax and VAT incentives for affected sectors, the exemption of import duties on certain raw materials, tax deferrals for MSMEs and energy-intensive industries, and flexibility to change cross-program budgets without the consent of the DPR.
However, Airlangga emphasized that the issue of time and the issuance of the Perppu was entirely the political decision of the President. He asked for special time so that the scenario could be discussed more limited.
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