Moody's: Indonesia's Budget Deficit Under Control After Fuel Price Hike
Credit rating agency Moody's Investors Service stated in a report released on Monday (24/06) that it is positive about the impact of the increase in price of subsidized fuel in Indonesia. Through this measure, the budget deficit of the Indonesian government is estimated to remain within 3 percent of GDP (the maximum threshold that is set by the government). Last Saturday (22/06), the price of gasoline was raised by 44 percent to IDR 6,000 and the price of diesel by 22 percent to IDR 5,500 despite widespread protests across the country.
Government subsidies had ballooned from 4.8 percent of total government spending in 2009 to 14.3 percent in 2012. If fuel subsidies were not reduced, the budget deficit would most likely have exceeded the 3 percent threshold. The current new context - after the fuel price hike - will see a budget deficit of about 2.4 percent of GDP. However, there is no indication yet that Moody's will upgrade Indonesia's sovereign rating soon. Moody's gave Indonesia the Baa3 rating (stable outlook) in 2012. This rating is the bottom rank within the investment grade status classification.
State-owned oil and gas company Pertamina is also a beneficiary of the subsidized fuel price hike as the company has been distributing fuel below market prices and thus depended on reimbursements from the government. With the new policy, Pertamina may save up to USD $3.6 billion. These funds can now be used to boost the company's working capital.
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