JAKARTA, Indonesia (AP) — Indonesia's budget deficit may surpass 3 percent — the threshold set by law — if there is no fuel price hike this year, the World Bank said Wednesday.
Indonesia's Parliament last week blocked the government's plan to raise fuel prices by 33 percent this month. It allowed a future hike only if the six-month average price of Indonesian crude soars 15 percent above $105 per barrel that is currently budgeted.
The current six-month average stands at $116.49 per barrel.
A World Bank report estimated that the deficit could rise from the current estimate of 2.2 percent to 3.1 percent if there is no adjustment to subsidized fuel prices and oil prices average $120 per barrel over the coming year.
The World Bank said it would be more productive to redirect the subsidies, which disproportionately benefit richer households, toward promoting economic growth.
"Effective spending on infrastructure and education, along with measures to improve the business climate, could potentially boost Indonesia's growth rate up to seven percent or higher," said Shubham Chaudhuri, the World Bank's lead economist for Indonesia.