Indonesia Faces Budget Pressure as Rupiah Falls and Crude Prices Climb

TheIndonesia.co - Currency market observer Ibrahim Assuaibi has warned the government about the combined impact of a weakening rupiah and surging global oil prices, saying the trend could place additional strain on the state budget (APBN).

He explained that a stronger US dollar, rising crude oil prices, and Indonesia’s heavy reliance on energy imports are creating mounting fiscal pressure, particularly as market conditions have moved well beyond the assumptions set in the budget.

“The strengthening US dollar is clearly contributing to the weakening of the rupiah. This is happening alongside increases in global crude prices, especially Brent Crude Oil and WTI Crude Oil. These increases have already exceeded the assumptions in the APBN, which were set at around US$70 per barrel,” Ibrahim told Suara.com on Wednesday (6 May 2026).

The rupiah weakened on Tuesday (5 May 2026), even as Indonesia’s statistics agency reported economic growth of 5.61 per cent.

According to Ibrahim, oil price assumptions are a critical component of the state budget as they affect the government’s ability to maintain subsidies, safeguard fiscal stability, and meet national energy demand. When global oil prices rise significantly above initial targets, fiscal space inevitably narrows.

He noted that the Ministry of Finance still considers prices around US$92 per barrel manageable, indicating that state finances remain relatively resilient in absorbing the impact of higher oil prices.

However, pressure is not limited to energy costs. The weakening rupiah is also adding strain, as the exchange rate assumptions in the budget—set at Rp15,000 to Rp15,500 per US dollar—are now far below current market levels.

Indonesia’s dependence on imported oil further compounds the issue. Ibrahim said domestic demand reaches around 2.1 million barrels per day, while domestic production stands at only 600,000 barrels. This leaves a shortfall of approximately 1.5 million barrels per day that must be met through imports.

These imports are paid for in US dollars, meaning that a stronger dollar combined with rising import needs significantly increases pressure on both the rupiah and the state budget.

“Demand for US dollars is therefore very high, as we have to purchase oil in dollars,” he said.

In addition, a large portion of Indonesia’s fuel consumption is subsidised, amplifying the fiscal impact of rising oil prices. Ibrahim estimated that between 65 and 75 per cent of imported fuel is subsidised by the government.

Given these conditions, he warned that fiscal risks cannot be underestimated, particularly if oil prices remain elevated and global geopolitical tensions persist.

“With oil prices rising, dollar demand increasing, and the budget based on US$70 per barrel and a Rp15,500 exchange rate, there is a strong possibility of a widening budget deficit,” Ibrahim concluded.