JAKARTA: The government may need to spend 190 trillion rupiah (US$13.23bil or RM56.63bil) more than planned to cover swelling subsidies, as surging international oil prices drive up the cost of fuel imports.
The Energy and Mineral Resources Ministry estimated that subsidies and compensation for gasoline, diesel and liquefied petroleum gas (LPG) may swell to 320 trillion rupiah (RM95.38bil) this year, more than double the 130 trillion rupiah (RM38.75bil) assumed in the state budget plan.
Compensation differs from subsidies in that it is paid to state-owned enterprises or SOEs after the current financial year.
The announcement comes as global oil prices are close to double the US$63 (RM269.38) per-barrel assumption that serves as the basis for the 2022 budget.
Sanctions imposed by numerous countries on Russia over its invasion of Ukraine have exacerbated a surge in oil prices that began more than a year ago when demand was rising as the global economy began to emerge from the Covid-19 pandemic.
“So, if the global oil price stays at its current level, the government is at risk of spending 320 trillion rupiah (RM95.38bil) on subsidies and compensation for fuel and LPG,” Energy and Mineral Resources Minister Arifin Tasrif said.
“That doesn’t include spending related to electricity; maybe electricity isn’t that big,” he added.
Brent, the international oil price benchmark, exceeded US$120 (RM513) per barrel in early March but has retreated somewhat since to hover around US$110 (RM470) per barrel in mid-April, Business Insider data showed.
The surge has triggered price hikes for nonsubsidised fuel and LPG, but the government has opted to keep prices of subsidised fuel and LPG capped.
Recently, however, the government signalled a willingness to start hiking prices of subsidised fuel and LPG to limit the drain on the state’s coffers.
Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan said on April 1 that the government had no option other than a gradual price hike on subsidised Pertalite gasoline and three-kg LPG cylinders, arguing that not doing so would either weigh on the state budget or “break” state-owned oil giant Pertamina.
Arifin strengthened the signal to raise subsidised fuel and LPG prices on April 13 by saying the government needed to make “adjustments”, as the state budget may not be able to cover the excess costs due to the oil price hike.
He also mentioned subsidised diesel and hinted at a rise in electricity prices, which the ministry said could save the state between seven trillion rupiah (RM2.08bil) and 16 trillion rupiah (RM4.77bil) in compensation spending alone.
Sung Eun Jung, senior economist at Singapore-based think tank Oxford Economics, said on Monday that the rise in the oil price weighed significantly on the budget.
While the state may collect around 11% more revenue this year compared with 2021, it also faced 10% higher expenditure due to the hike in oil and gas subsidy spending.
This meant the 2022 budget deficit would remain at around 4.5% of gross domestic product (GDP), dipping just marginally from last year’s 4.6% of GDP, which posed a challenge for fiscal consolidation.
“We expect fiscal consolidation next year, but perhaps at a slower pace than the initial state budget for 2023 indicates,” Eun Jung told The Jakarta Post.
Natural resources researcher Komaidi Notonegoro, who serves as executive director at ReforMiner Institute, said the latest budget figures suggested the government may be losing more than it was gaining from high commodities prices.
He said the 2022 state budget assumed that every US$1 (RM4.27) per barrel rise in the international oil price would result in additional revenue of three trillion rupiah (RM894.39mil), higher than the additional expense of 2.6 trillion rupiah (RM774.95mil).
However, he estimated that the additional expense could exceed four trillion rupiah (RM1.19bil), wiping out all of the commodity boom windfall. — The Jakarta Post/ANN