Photo by Finance Ministry

JAKARTA (TheInsiderStories) – The Indonesian government plans to issue yen-denominated government bonds (Samurai Bonds) and Euro bonds in the second quarter of 2018, director general of budget risk management Luky Alfirman.

“Samurai and Euro bonds are in our pipeline this year, following the successful of Green Sukuk Bond sale in the previous month,” he said on Wednesday (4/4).

He said that the year 2018 is likely challenging, even though the overall situation seems it will improve. Among the issues that worries investors are the anticipated increase of the US Federal Fund rate, and a stalling Chinese economic growth.

The government’s move to sell Samurai Bonds is expected to help expand investor base from Japan’s capital market. This is expected to help ease dependency on particular types of investors, apart from optimizing the Japanese capital markets as a source of low-cost financing.

Last year, government has successfully raised 100 billion yen (about US$901 million) from the Samurai bonds sale and 1 billion Euro from Euro bonds.

As the country has secured investment grades from the three major international rating agencies, the government believes, coupled with raising positive sentiment among Japanese investors, the upcoming Samurai Bond sale will also boost confidence among global investors.

Indonesia has raised Rp 846.4 trillion from selling government bonds and 80 percent of them are in local currency denomination. Proceeds from the bond sale will be used to help plug budget deficit.

The state budget deficit stood at 2.48 percent of Gross Domestic Product in 2017. In 2018 the government aims to reduce the deficit to 2.2 percent of GDP, partly supported by a planned 20 percent increase in tax revenue.

Meanwhile, the central government’s outstanding debt stood at a low level of 28.98 percent of GDP as of end-2017. Analysts have said that a potential risk for Indonesia is the ratio of domestically issued government bonds held by non-residents is high at around 40 percent. A big chunk of bonds in foreign hands, means there is a risk of sudden outflows in times of global economic turmoil.