Ministry Of Finance: Fiscal Space Still Safe To Reduce Impact Of Iran-Israel War

KONTAN/Baihaki

Ministry Of Finance: Fiscal Space Still Safe To Reduce Impact Of Iran-Israel War

Thursday, 26 Jun 2025

The Ministry of Finance (Kemenkeu) continues to monitor the impact of the Iran-Israel conflict on the Indonesian economy.

Head of the Ministry of Finance's Communication and Information Services Bureau (KLI), Deni Surjantoro said that in terms of the level of pressure experienced by the Indonesian financial market, based on the assessment, it has not indicated a critical situation.

Deni said that the level of weakening is still in line with normal market mechanisms where there is a decrease in risk appetite and we estimate that the impact is more temporary and the market is still observing future developments.

"The level of pressure this week is still within a safe range and has not had a significant impact on the economy or the performance of the domestic financial services industry, including fiscal performance," Deni said in his statement, Monday (23/6).

Including in terms of domestic transmission through oil price pressures on inflation related to fuel prices, Deni emphasized that it can be reduced by subsidies and compensation provided by the Government.

"There is still fiscal space to absorb the risk of inflation domestically through the Government's policies. The function of the APBN as a shock absorber can still function well," he said.

He added that the current oil price level is still below the assumption used for the 2025 State Budget, which is at US$ 82 per barrel.

Then, the Brent oil price at the end of this week is still at US$ 77.27 (eop) and the average YtD ICP is still below US$ 73 per barrel, so there is still fiscal space to dampen the spread of inflation.

On the other hand, investor confidence in sovereign instruments, namely SBN, is also still maintained, although there is an outflow, but in terms of pressure on prices (yield increases) it is still very limited.

Even so, Deni emphasized that the government continues to be aware of global risks and their transmission to the domestic economy, by preparing initial mitigation steps and optimizing the role of the State Budget as a shock absorber.

Solid policy synergy between the government (both central and regional) to anticipate the risk of inflation is carried out, including policy synergy with fiscal, monetary, and financial sector authorities.