We expect the fiscal deficit to widen to the equivalent of 1.2% of GDP in 2011, from an estimated 0.8% in 2010. This compares with the target of 1.8% of GDP in the 2011 budget. Despite attempts by the finance minister, Agus Martowardojo, to reward ministries that achieve their spending targets and to penalise those that miss them, underspending will remain a problem. The recent rise in global oil prices poses the main risk to our forecast. Despite the fact that fuel subsidies mainly benefit Indonesia's middle class, the government has baulked at proposals to allow prices for petrol, diesel and other fuel products to rise and fall in line with market trends. The international price of oil (dated Brent Blend) was around US$113/barrel in late May, well above the Indonesian government's 2011 budget assumption of US$80/b, meaning that spending on subsidies this year could easily exceed the official projection of Rp187.6trn (US$22bn). The recent upward revision to our forecast for global oil prices in 2012-15 means that government subsidies are likely to remain high, keeping the fiscal deficit at 1.2% in 2012-13. We expect the deficit to narrow marginally in 2014-15. A healthy rate of economic growth should cause government debt to fall further relative to GDP, and this could mean that Indonesia's sovereign debt rating improves to investment grade, thus enabling the government to raise funds in international markets more cheaply.