Government to maintain fuel subsidies despite rising expenditure

ملخص مفصل

The government has reaffirmed its intention not cut fuel subsidies despite surging global oil prices, banking on strong revenue growth to get the 2026 state budget safely to the finish line.

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The government has reaffirmed its intention not cut fuel subsidies despite surging global oil prices, banking on strong revenue growth to get the 2026 state budget safely to the finish line.

he government paid state-owned energy companies Rp 415.8 trillion (US$22.85 billion) in subsidies and compensation, far more than initially planned, Finance Minister Suahasil Nazara revealed in a press conference on Friday, to keep retail prices for gasoline, diesel and electricity below market prices.

Since the early days of the Iran war, which has severely constrained global oil supplies and driven up prices, the government has stuck to its commitment not to increase fixed prices for consumers, maintaining that the budget could absorb the shock even if global oil prices ended up averaging $100 per barrel this year.

Suahasil reiterated on Friday that the policy was aimed at “safeguarding people’s purchasing power” but admitted spending was ballooning as a result.

Subsidies and compensation were originally allocated Rp 338 trillion in the 2026 budget, which was formulated in 2025. However, in July the government lifted the ceiling to Rp 500 trillion, and some Rp 84 trillion remains for subsidy expenditures over the last two months of the year.

The state budget refers to a domestic benchmark called the Indonesia Crude Price (ICP), which is typically $3-4 lower than the Brent Crude global benchmark.

The 2026 budget presumed an average ICP of $70 per barrel before this was revised to $83 per barrel in July to account for fallout from the Middle East conflict.

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