Higher crude prices and a weaker currency on one hand and robust domestic demand on the other may push Indonesia’s energy subsidy to 306 trillion rupiah ($32.6 billion) this year, equal to 23 percent of the country’s revenue, a finance ministry document showed Thursday.
The fourth most populous country in the world heavily subsidises gasoline, diesel fuel, and electricity to shield millions of its poor. The World Bank estimates that about half of Indonesia’s 240 million population lives under $2 a day.
Despite already turned into a net oil importer, the Southeast Asian nation pegs the price of the widely used RON88 gasoline at IDR4,500 (less than $0.5) a litre, the cheapest in the region, and nearly half the price of the non-subsidised ones.
Such artificially low price is eating up the country’s fiscal revenue and the amount of money it can put into revamping its dilapidated infrastructure, among others.
Raising the price of subsidised fuels and electricity, however, is politically and socially sensitive. The parliament in April vetoed a government’s proposal to raise subsidised fuel prices by 33 percent after some protests in the country turned violent.
The finance ministry document showed the government spent IDR124.4 trillion for energy subsidy in the first six months of the year, about 62 percent of its full-year allocation, and about four times the IDR30.6 trillion it spent for capital expenditure.
At IDR88.9 trillion, fuel subsidies dominated the overall energy subsidies in the January-June period; electricity subsidy made up the remaining IDR35.5 trillion.
In the first half, “the ICP averaged $118 a barrel and the rupiah weakened to an average of 9,203 a dollar from 8,747 a dollar a year ago,” the ministry said in the document, referring to the Indonesian Crude Price, the benchmark price it uses for oil export and import.
The ministry expects the country’s vast domestic market to be able to shield the country from economic woes in the West, forecasting growth to come in a range of 6.3%-6.5 percent this year after posting a 6.5 percent growth in 2011.
Robust domestic demand–contributing to more than half of Indonesia’s gross domestic products–is expected to drive up energy consumption in the second half of the year, especially as the Muslim-majority country celebrates Eid Al-Fitr.
Deputy Finance minister Anny Ratnawati said Thursday subsidised fuel consumption could reach 42 million kilo litres this year, higher than the 40 million kilo litres allocated.
In the document, the Ministry of Finance forecasts total energy subsidy to reach IDR305.9 trillion this year, or 51.2 percent above its allocation, and rising about a fifth from last year’s IDR255.6 trillion. The above-budget subsidy may slightly push the country’s budget deficit to 2.3 percent of GDP from 2.2 percent previously estimated, the ministry added.