The first simulation is that if the volume of subsidized fuel and LPG is in line with the 2023 quota, but there is a change in the ICP price to USD 110/barrel and an exchange rate of IDR 15,500/USD, the potential for additional fuel and LPG subsidy and compensation will be IDR 124.9 trillion, which could balloon the State Budget deficit to IDR 723 trillion or 3.43% of GDP.
The second simulation assumes that the ICP price rises to USD 110/ barrel and the exchange rate is IDR 15,500/USD, and an assumption that sales restrictions on subsidized fuel will be implemented, resulting in a decrease in the volume of subsidized fuel, by up to 10%. Pertalite will be 28.8 million kl, and diesel fuel will be 14.4 million kl. With these two assumptions, the potential for additional subsidy and compensation will be IDR 53.8 trillion, resulting in a State Budget deficit of IDR 652 trillion or 3.10% of GDP.
In the third simulation, the ICP price is assumed to be USD 105/barrel, and the Rupiah exchange rate is IDR 15,500/USD. The fuel and LPG quota remain the same, but there will be an adjustment to the selling price of subsidized fuel and LPG, by 10%. Thus, the potential for an additional subsidy and compensation will be IDR 88.8 trillion, causing an IDR 687 trillion State Budget deficit or 3.26% of GDP.
Read: Effective subsidies for Jabodetabek Commuter Line
Lastly, the fourth simulation assumes that the ICP price is USD 105/barrel and the exchange rate is IDR 15,500/USD, followed by a 10% reduction in subsidized fuel quota (as in the second simulation) and a policy of adjusting fuel and LPG prices by 10% (as in the third simulation). Consequently, the potential for additional subsidy and compensation will be IDR 25 trillion, resulting in a State Budget deficit of IDR 623.2 trillion or 2.96% of GDP.
From the four simulations, it can be temporarily concluded that the fiscal conditions in 2023 will be quite challenging to face the risks of rising oil prices and the weakening of the Rupiah exchange rate. Thus, to prevent additional energy subsidy and compensation from pushing the 2023 State Budget to above 3% of GDP, the Government needs to transform the energy subsidy policy from an open mechanism to a closed and targeted subsidy immediately. Revision of Presidential Regulation No. 191/2014 on consumer segmentation of subsidized fuel and digitization through the MyPertamina platform can be a transitional instrument in reforming the national energy subsidy policy.