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The World Bank estimates Indonesia’s budget and expenditure based on Gross Domestic Product (GDP) will be a deficit of 3.1 percent of the gross domestic product or GDP, if the government will implement the price increase of subsidized fuel (BBM) on the third quarter of 2012.

Member of the Indonesian economy from the World Bank, Shubham Chaudhuri says, changes the state budget deficit of 2.2 percent, up from 1.5 per cent due to the rise of energy subsidies and infrastructure spending. “If the average oil price of 120 U.S. dollars per barrel for a year, an estimated budget deficit could reach 3.1 percent of GDP,” he said in Kuala Lumpur, Tuesday. It will added a budget deficit from estimate was based on fuel prices also without adaptation or 2.5 percent of GDP, if the increase in subsidized fuel prices implemented in the third quarter of 2012.

He said the supply disruptions and geopolitical concerns has resulted in international oil prices rose sharply. The average price of Indonesian crude oil reached 122 U.S. dollars per barrel in the first three months of 2012. “Government in the state budget assumptions are conservative in the P-105 U.S. dollars per barrel. Based on the projected price of oil futures contracts and petrol price adjustment mechanism which has just confirmed the by the house of legislative of Indonesia, the baseline scenario in this report considers the fuel price subsidy will be increased in quarter three 2012 , “he said.

Shubham says, reduce the fiscal risk and fuel subsidies also provide a valuable opportunity to redirect government spending in the medium term to the more pressing development needs and to improve cost efficiency. However, he continued, from the side of fiscal sustainability, increased the budget deficit could be contained because of the initial debt position of Indonesia is quite good.

However, he continued, on the other hand the risk of passing the budget deficit limit of three per cent of GDP can lead to reduced spending in priority areas of development. “The high level of uncertainty and difficulty of the approach used in the fuel price adjustments also affect the outlook for inflation and macroeconomic policies to investors,” he implied.

Shubham said, in politics, the decision not to raise fuel prices reflect the lost opportunity or suspension to redirect spending at risk are global in nature. “There was the global economic growth remains a major risk,” he added. It added that the risk of stress in financial markets stemming from the euro area countries may spread to Indonesia is still there, because the vulnerability of foreign investors in the equities and government bonds.

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