World Bank Urges Indonesia to Reform Fuel Subsidies, Citing Wealthy Benefit

The World Bank is pressing Indonesia to overhaul its fuel subsidy program, arguing that the current system disproportionately benefits affluent citizens rather than the intended low-income recipients. In its June 2026 Indonesia Economic Prospect report, the international financial institution highlighted that the richest 20 percent of households capture over half of the subsidy benefits.

Global oil price volatility, with Brent crude hovering around US$94 per barrel, is significantly straining Indonesia's state budget. This challenging economic climate, however, presents a critical window for implementing necessary reforms, the World Bank stated.

The lender outlined a clear, three-step strategy for the Indonesian government. First, it recommends gradually adjusting fuel prices and providing advance notice to consumers to bridge the gap between subsidized and market rates. Second, the plan involves introducing targeted cash transfers to the poorest 40 percent of households. This financial assistance would represent only 10 percent of the total savings from subsidy cuts, minimizing the fiscal burden.

Finally, the World Bank advises transparently reallocating the remaining savings from subsidy reductions into social protection initiatives, public infrastructure projects, and support for vulnerable groups. The report projects that this phased approach could generate fiscal savings equivalent to 1.3 percent of GDP within two years, potentially reaching 2.1 percent upon full price adjustment. The World Bank emphasized the need for gradual implementation, clear public communication, and robust data systems to ensure public trust and the success of these reforms.

“

The surge in global oil prices has again exposed the fiscal cost and weak targeting of generalized fuel subsidies: the richest 20 percent of households receive more than half of subsidy benefits.