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Abstract
Indonesia’s public debt outlook is stronger than in many advanced and emerging economies. Nevertheless, Indonesia, like other emerging economies with relatively low debt levels, is still exposed to shocks. This chapter presents considerations for setting up a fiscal strategy in Indonesia aimed at maintaining sustainability while managing uncertainties and risks. Stochastic simulations confirm that a medium-term fiscal consolidation strategy, based on subsidy reduction and revenue administration reforms in line with the authorities’ framework, is robust to macroeconomic and oil price shocks. However, delaying subsidy reform could increase fiscal vulnerabilities in the context of rising fuel consumption, volatile oil prices, and oil production shocks.
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