After admitting Indonesian economy is entering a recession, the next challenge to be faces by the government is the risk of debt - Photo by FInance Ministry Office

JAKARTA (TheInsiderStories) – After admitting Indonesian economy is entering a recession, the next challenge to be faces by the government is the risk of debt. Head of fiscal policy agency at the ministry of finance, Febrio Kacaribu, stated that in 2021, the country’ debt ratio is estimated to reach 40 percent of total gross domestic product (GDP) in 2021.

This year, the government debt ratio is estimated stood at 33 percent of GDP from last year’ 30 percent of total GDP. The debt ratio raises as the government need lot of funds to finance the state budget deficit caused of the virus outbreak.

“Throughout this year we have been in a recession. The fourth quarter is expected to improve, but the risk will still remain. We will fine tuning the program so the government debt can be handled well,” he said in a virtual press statement last week.

In this year, the government’ need to increases the debt risk to finance the budget deficit more than Rp1,000 trillion (US$67.57 billion) or 6.34 percent of GDP, including for the national economic recovery program (ERP) worth of Rp635 trillion. Next year, the budget deficit equal to 5.5 percent of GDP, included the ERP program of Rp370 trillion.

According to him in this year, the government still needs the issuance Rp573.64 trillion of state bonds, which will be fulfilled from regular auctions of Rp. 206.9 trillion, retail bonds of 26 trillion, and private placement with Bank Indonesia of Rp. 298 trillion.

Based on BI data, Indonesia’ external debt position at the end of July 2020 was recorded at $409.7 billion, consisting of $201.8 billion owned by government and central bank also public sector (including state run firm) worth of $207.9 billion. The external debt growth was recorded at 4.1 from a year ago (YoY).

The position of government external debt at the end of July was recorded at $199.0 billion or grew 2.3 percent (YoY), due to the withdrawal of part of the commitment of multilateral loans and the issuance of Samurai Bonds to meet financing needs and to support the government spending.

The ratio of Indonesia’ external debt to GDP at the end of July was 38.2 percent, an increase compared to the ratio in the previous month of 37.4 percent. The structure of the external debt remains dominated by long-term external debt with a share of 89.1 percent of total external debt.

Recently, the International Monetary Fund (IMF) reminded Indonesia to manage the debt prudently to prevent the excessive external imbalances as a result of the pandemic. In a report titled External Sector Report, states that a country like Indonesia, whenever possible, manages public debt carefully.

In this case, the the agency suggested that policies should be continued to address domestic imbalances to prevent excessive external imbalances.

US$1: Rp14,800

by Linda Silaen, Email: linda.silaen@theinsiderstories.com