World Bank Criticizes Indonesia for Failing to Increase Fuel Prices

The World Bank has criticized Indonesia for failing to reduce costly fuel subsidies.

“The decision not to increase prices now represents a missed, or delayed, opportunity to redirect spending at a time when risks remain in the global environment,” the World Bank said in a report on Wednesday.

“Reducing fuel subsidies also represents a valuable opportunity to redirect government spending over the medium term to more pressing development needs and to make this spending more efficient.”

Indonesia’s inflation rate may rise to 8.5 per cent this year if the government raises fuel prices in the third quarter, though growth will likely remain robust at 6.1 per cent, the World Bank says.

Inflation was seen at 5.4 per cent this year if the government kept subsidized fuel prices at current levels, but such a move would lead to a budget deficit equal to 3.1 per cent of GDP as opposed to 2.5 per cent with a fuel price hike, the report said.

Indonesia’s parliament has scrapped the government’s plan to raise subsidized fuel prices by a third immediately, but gave it authority to raise prices if the country’s benchmark crude price averages 15 per cent above its target of $105 over six months.