A senior Indonesian economic minister stated on Friday that the government might impose additional export taxes on certain commodities, such as palm oil, if necessary, to mitigate the impact of rising global oil prices on the budget.
Coordinating Minister for Economic Affairs, Airlangga Hartarto, indicated that as a major global commodity player and the world's largest producer of nickel and palm oil, Indonesia has the option to levy extra export taxes on nickel, copper, and gold.
President Prabowo Subianto noted that austerity measures could be adopted to alleviate the effects of increasing global oil prices.
Airlangga, who also serves as a government economic modeler, explained that if oil prices remain elevated due to the conflict involving Iran, it would be very challenging to keep the fiscal deficit within the legal ceiling of 3% of GDP without cutting expenditures or lowering economic growth expectations.
He stated that these scenarios must be considered, along with the possibility of issuing an emergency government regulation should the deficit exceed the limit.
The government has projected three scenarios for how the Middle East conflict could affect Southeast Asia's largest economy. In the first scenario, the minister said, if the conflict persists for five months, with an average crude oil price of $86 per barrel this year and the Indonesian rupiah weakening to 17,000 against the U.S. dollar, growth would remain at 5.3%, but the fiscal deficit would reach 3.18% of GDP.
Airlangga added that if the average crude oil price rises to $97 per barrel, growth would slow to 5.2%, and the deficit would widen to 3.53%. In the worst-case scenario, with oil averaging $115 per barrel, the deficit could climb to 4%.
Oil prices continued to rise on Friday, as the Middle East conflict and its disruption to oil supplies in the Gulf region overshadowed measures taken by the United States to ease supply concerns.
At 09:18 GMT, Brent crude futures for May were up 88 cents, or 0.9%, at $101.34 per barrel, marking a weekly gain of 9%. U.S. West Texas Intermediate crude for April rose 26 cents, or 0.3%, to $95.99 per barrel, up 6% for the week.
Goldman Sachs predicted on Friday that Brent crude prices would exceed $100 per barrel in March and reach $85 by May, driven by the Middle East conflict, damage to energy infrastructure in the region, and disruptions to shipping along the Strait of Hormuz.
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