JAKARTA (TheInsiderStories) – Until April 28, Indonesia has issued state bonds more than US$20 billion to finance its 2020 State Budget deficit. In the latest auction, finance ministry won the Rp16.62 trillion (US$1.07 billion) of state bond from the auction of seven series on Tuesday.
This value is far below the government’ target of Rp40 trillion. Total incoming bids amounted to Rp44.39 trillion. At the auction, the ministry offered series SPN03200729 (new issuance), SPN12210429 (new issuance), FR0081 (reopening), FR0082 (reopening), FR0080 (reopening), FR0083 (reopening) and FR0076 (reopening).
SPN03200729 series received a total incoming bid of Rp250 billion with the highest yield or 3.5 percent and the lowest yield of 3.5 percent. Then, SPN12210429 series produced a total incoming bid of Rp260 billion with the highest yield bid of 4 percent and the lowest yield of 3.54 percent.
Series FR0083 became the state bond with the highest bid of Rp17.05 trillion with the highest yield bid of 8.5 percent and the lowest yield of 7.44 percent. Meanwhile, FR0082 produced an offer of Rp12.43 trillion with the highest yield of 9 percent and the lowest yield of 8 percent.
On same day, finance ministry has issued the government bonds $4 billion by private placement scheme. In April 7, the Southeast Asia largest economy releases global bond $4.3 billion.
According to finance minister Sri Mulyani Indrawati, until the end of March debt financing reached 21.7 percent or Rp76.48 trillion of the 2020 State Budget targets around Rp999.6 trillion. In April only, the ministry has released more than $10 billion, divided in local and foreign currencies.
The impact of the COVID-19 pandemic, she said, has a biggest impact to the domestic economy. To that, the government needs to provide intervention and stimulus in both the health and economic sectors so that it requires relaxation of the budget deficit above 3 percent of GDP.
Indrawati assured that in the midst of various domestic and global pressures, the government continues to manage debt in a prudent and accountable manner in supporting an increasingly credible of the state budget.
“We will see that in the next few months the financing posture will change along with state revenues that are experiencing pressure and accelerating state spending, especially to help the health and social sector and to encourage or assist our economic sector,” she explained.
The epidemic, which requires extraordinary policies from the government certainly, has an impact on the posture of this year’ state budget. The decline in commodity prices also impacted state revenues.
At the same time, state spending must increase for health, social assistance and help businesses not to do large-scale layoffs. This causes the deficit to widen to 5.07 percent, she adds.
“We estimate revenues to decline by 10 percent. Expenditure increased to support the health sector Rp75 trillion, social safety net Rp110 trillion, and high spending for public protection. Estimated deficit from 1.76 percent of GDP or Rp307.2 trillion to 5.07 percent or Rp853 trillion, but we are trying to under 5 percent,” said the minister.
In financing the State Budget, the Government optimizes non-debt and debt financing sources. Non-debt financing sources include the use of surplus budget, the government’ endowment fund account, and funds sourced from the state companies.
Regarding debt financing, the Government prioritizes the issuance of state bonds through market mechanisms, both in the domestic market and globally. Currently available for foreign currency securities are Global Bonds and SUKUK, both in US Dollar and Euro, also Samurai Bonds.
“Flexibility raises opportunities both in terms of timing and size of issuance according to financial market conditions. All are issued with the principle of prudence by taking into account the smallest risks and costs,” she noted.
The ministry can also add the government bonds by opening the opportunity to issue several private placement requests from state-owned enterprises or institutions, like Indonesia Deposit Insurance, Hajj Financial Management Agency, and others. The ministry also has flexibility for funding sourced from development partners in the form of program loans, both bilateral and multilateral.
Options are available for the Government to raise funding to $6 billion from the World Bank, Asian Development Bank, Asian Investment and Infrastructure Bank, Agence Française de Développement, KfW, JICA, and other donor agencies.
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