Indonesia: Fiscal and debt risks with higher US yields – BNP Paribas

BNP Paribas analyzes how Indonesia’s decision to cap fuel prices and increase subsidies leaves its public finances exposed if Brent Oil averages USD 92–100 in 2026. The bank estimates subsidy costs near 0.6% of GDP and warns that Indonesia’s fiscal deficit could breach the 3% of GDP cap, while its debt structure remains vulnerable to rising US long-term yields.

Subsidies strain deficit and debt profile

"The cost is estimated at between 0.2% of GDP in Malaysia and 0.6% of GDP in Indonesia, assuming that currencies stabilise at current levels, as any further depreciation against the dollar would automatically increase the cost incurred."

"Indonesia, like India, Malaysia and Thailand, has the capacity to absorb this new shock to its public finances."

"Indonesia’s fiscal deficit could exceed the 3% of GDP threshold set by parliament in 2026 (unless the government reduces significantly other kind of expenditures), which would cause significant concern among foreign investors."

"The most exposed country would be Indonesia, whose domestic market is too small to cover the government’s financing needs and offset any tightening of financing conditions on international markets."

"By contrast, although modest (40.5% of GDP), the structure of the Indonesian government’s debt is viewed as the most fragile among the countries studied."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)