Indonesia To Shift $1.6 Billion Portion Of Fuel Subsidy Budget To Welfare Programmes

Indonesia will reallocate 24.17 trillion rupiah ($1.62 billion), or nearly 5%, of its fuel subsidy budget to social spending, including cash handouts to 20.65 million households, its finance minister said on Monday.

The move comes amid reports that the government has been considering raising subsidised fuel prices to manage rising fiscal pressure due to high global energy prices.

Southeast Asia’s largest economy has already tripled its 2022 energy subsidy allocation from its original budget to 502 trillion rupiah – about 16% of total spending plans, but authorities have said more money could be needed if fuel prices were not increased throughout the year.

Finance Minister Sri Mulyani Indrawati said the reallocation of spending will be enacted this week and was decided after discussing the fuel subsidy policy with President Joko Widodo.

“The people will get social assistance in order to increase their purchasing power,” Sri Mulyani told an online news conference, speaking alongside Bank Indonesia Governor Perry Warjiyo.

She did not take questions and did not mention fuel price hike plans.

The government would also provide cash handouts to 16 million workers who make less than 3.5 million rupiah per month, she said.

Regional governments would be instructed to use a portion of their fiscal transfer from the central government to subsidise transportation fares, she added.

Lawmakers from parliament’s energy committee last week told Reuters the government may raise fuel prices by 30% to 40% and that such a move will add 1.9 percentage points to 2022’s inflation rate.