Energy shock compounds Indonesia’s fiscal challenges

Indonesia was already struggling to contain its budget deficit and the conflict in the Middle East will only add to the challenges, with the government planning to temper the impact on local fuel prices by boosting energy subsidies. Officials have pledged fiscal tightening in other areas, but we’re not convinced that it would do enough and it’s looking increasingly likely that the fiscal rules will be suspended. Such a move could further reinforce investors’ concerns about the direction of policymaking under Prabowo.