Indonesia fuel subsidy to more than double in 2H12

Government projects fuel subsidy to swell to $23.1b, raising concerns on deficit target.

According to Maybank Kim Eng, The Ministry of Finance said that the government has spent IDR88.9t (USD9.5b) on fuel subsidy in 1H12, or 64% of the allocated budget in 2012. Based on the ministry’s projection, fuel subsidy might swell to IDR216.8t (USD23.1b) for 2012. Likewise, electricity subsidy is also projected to balloon to IDR89.1t from IDR65t (USD9.4b) budgeted.

"The announcement should be highly anticipated as surging oil price in 1H12 has caused subsidized fuel consumption to balloon," it added.

"However, the government is still optimistic that the deficit target of 2.3-2.4% will not be breached. Partly contributing to the optimism is the recent correction in oil price as reflected in Indonesia Crude Price (ICP), which has declined to USD99/bbl from the highest level of USD128/bbl in Mar 2012," Maybank Kim Eng said.