Global Conflict and Fiscal Strain: Challenges for Indonesia’s APBN

Mohammad Nur Rianto Al Arif
(Professor at UIN Syarif Hidayatullah, Secretary General of the Indonesian Lecturers Association, Executive Board Member of IAEI, Executive Board Member of ISEI Jakarta Chapter)

The world is currently in a phase of significant uncertainty. In recent years, the global economy has been shaken by a series of overlapping crises. A pandemic that has not fully recovered, increasingly complex geopolitical conflicts, and open wars in various regions have created major pressure on global economic stability.

One of the biggest sources of uncertainty today is the conflict in the Middle East, which has been ongoing since February 28, 2026. The Middle East holds a strategic position in the global economy, especially as a center of energy production.

When this region is hit by conflict, the impact is not only felt by the directly involved countries but also by the entire world. Energy prices become unstable, trade routes are disrupted, and global market sentiment becomes highly sensitive.

For developing countries like Indonesia, global uncertainty brings serious consequences. One of the most affected sectors is state finance. The State Budget (APBN), which serves as the main instrument for national development, is facing increasing pressure.

Fluctuations in commodity prices, the potential slowdown of the global economy, and rising government spending needs may lead to a higher risk of budget deficits. In this situation, the government faces a difficult policy dilemma. On one hand, the state must maintain economic stability and continue development programs. On the other hand, fiscal limitations force the government to pursue efficiency and even budget reallocation.

This situation requires both caution and intelligence in managing fiscal policy so that economic stability can be maintained.

The war in the Middle East is not merely a regional conflict. Its impact has a wide global resonance. This is due to the region’s strategic role in the global energy system and international trade routes.

Every escalation in this region is almost always followed by an increase in global oil prices. Prices are estimated to rise to around 150–200 dollars per barrel if the conflict continues.

When energy prices surge, production costs in many countries also increase. As a result, global inflation may rise while economic growth tends to slow down.

Beyond energy, geopolitical conflict also creates uncertainty in global financial markets. Investors become more cautious, capital flows shift toward safer assets, and developing countries often become the most vulnerable to such volatility.

Global uncertainty can also affect international trade. Disruptions in distribution routes—especially due to closures in the Strait of Hormuz—lead to higher logistics costs, while slower global growth reduces demand for commodities. This condition may impact countries that rely heavily on commodity exports.

For Indonesia, this situation presents a serious challenge. As an open economy, Indonesia cannot fully avoid global shocks. When the global economy slows, export performance may decline. At the same time, energy price volatility can increase pressure on the state budget, particularly related to energy subsidies.

The APBN is the main instrument for carrying out development and maintaining economic stability. Through it, the government funds development programs, provides public services, and implements economic policies.

However, under global uncertainty, the APBN structure faces significant pressure from both the revenue and expenditure sides.

On the revenue side, a global slowdown can reduce export performance and domestic economic activity. When economic activity weakens, tax revenue—Indonesia’s main source of income—may decline. Moreover, domestic purchasing power has not fully recovered.

Commodity price volatility also affects revenue. In recent years, Indonesia benefited from increased income from commodities such as coal and palm oil. However, these gains depend heavily on unstable global markets.

On the expenditure side, pressure tends to increase. The government must maintain energy price stability, provide social protection, and ensure development programs continue. All of these require substantial funding.

When revenue does not grow as fast as spending needs, budget deficits become difficult to avoid.

A budget deficit is not always negative. Many countries use deficits as a fiscal tool to stimulate economic growth. However, large and uncontrolled deficits can threaten fiscal stability.

Indonesia has maintained relatively good deficit management, with a cap of three percent of GDP. This fiscal discipline helps maintain market confidence. However, in times of global uncertainty, fiscal space becomes tighter.

If pressure continues, the risk of rising deficits becomes more real. To cover deficits, the government typically increases financing through debt issuance. While debt is a legitimate fiscal tool, excessive reliance carries risks. Rising interest payments can reduce fiscal space for future development.

In this situation, the government faces a difficult trade-off. On one hand, it must protect the public through social programs, energy subsidies, and price stabilization policies. On the other hand, limited budgets force stricter prioritization.

This dilemma often sparks debate over budget efficiency policies. Some see efficiency as necessary for fiscal health, while others worry it may hinder development and public services.

Efficiency should not simply mean cutting spending, but ensuring every rupiah delivers optimal benefits.

In practice, efficiency can include reducing non-priority spending and improving budget effectiveness. Common measures include cutting operational expenses such as official travel, ceremonial activities, and administrative costs.

However, these savings are often small compared to total government spending.

The greater challenge arises when efficiency affects programs with direct public impact. Reducing infrastructure budgets, for example, may slow long-term economic growth. Therefore, efficiency policies must be carefully designed and based on comprehensive evaluation.

Besides efficiency, budget reallocation can also be used. This means shifting resources from less urgent programs to more critical ones.

In times of uncertainty, reallocation is often needed to strengthen economic stability and social protection programs. Social assistance, food price stabilization, and support for small businesses may become top priorities.

Reallocation can also strengthen strategic sectors such as energy, food, and industry, improving long-term economic resilience.

However, reallocation is not without challenges. It often involves competing interests across ministries and political actors. Therefore, transparency and accountability in budget management are essential.

Global uncertainty highlights the importance of fiscal resilience. Countries with strong fiscal foundations have greater flexibility to respond to crises.

Fiscal resilience is not only about revenue size, but also about budget quality. Efficient and transparent management enables better responses to economic pressure.

For Indonesia, strengthening fiscal resilience can be done through several strategies. First, increasing revenue through more effective and fair tax reform. Second, improving the quality of government spending to be more productive. Third, strengthening coordination between fiscal and monetary policy.

The world will likely continue facing uncertainty in the coming years. Geopolitical conflict, climate change, and global economic dynamics will continue to shape economic stability.

In this situation, countries cannot rely solely on short-term policies. Long-term strategies are needed to strengthen economic foundations. State budget management becomes a key instrument—not only for stabilization, but also as a driver of development.

This article was published in Kompas on Monday, March 16, 2026.