Kings Key Ltd., a Hong Kong-based company under Road King Expressway group, has acquired 30 percent shares of Medan - Kualanamu - Tebing Tinggi toll road from PT Waskita Toll Road - Photo by Presidential Office

JAKARTA (TheInsiderStories) – President Joko Widodo‘s ambition to build infrastructure financed by public debt since taking over the administration three years ago has aroused an uneasy awareness among the public.

Indonesian government debt reached Rp3,938.7 trillion (approx. US$294 billion) as of the end of 2017, up Rp423.3 trillion from its position of Rp3,515.4 trillion at the end of 2016. Despite this bulge, Indonesia’s public debt is still considered ‘safe’ at just 29.2 per cent of gross domestic product (GDP).

This figure certifies Indonesia as one of the world’s healthier economies in terms of debt-to-GDP (Indonesian law caps the ratio at 60 per cent of GDP). Many emerging peers as well as advanced nations – for example the United States and Japan – have much higher debt-to-GDP ratios.

The Indonesian government’s external debt consists of bilateral and multilateral loans, export credit facilities, commercial loans, leasing and government securities owned by non-residents, issued on both foreign and domestic markets.

Government securities consist of both conventional and Islamic debt instruments; government bonds fall due after more than 12 months and Treasury Bills less than or 12 months. Government Islamic Securities consist of both long-term instruments (Ijarah Fixed Rate) and Global Sukuk.

This debt is manageable and actually quite low compared to that of other key emerging economies or even advanced economies. For example, Malaysia’s and Brazil’s public debt-to-GDP ratios stand at 56 per cent and 70 per cent, respectively. Meanwhile, the ratios of the USA and Japan stand at 105 per cent and 246 per cent, respectively.

Finance Minister Sri Mulyani Indrawati has assured the public the government will keep the country’s debt-to-GDP ratio below 30 per cent, far lower than the legal threshold set at 60 per cent.

Since 2002, Indonesia’s budget deficit has been maintained below two per cent of GDP. This trend is not likely to continue in 2012, as the government has not cut the massive energy subsidies (for both fuel and electricity) that burden the budget balance.

Although progress has been made in shifting public spending from inefficient subsidies to pro-poor programs, Indonesia is still spending too little money on infrastructure and secondary education, compared to any advanced country.

Government debt continues to grow, tracking intensified infrastructure development. Even so, the level of employment in the sector is quite insignificant. This implies additional government debt is not productive in terms of new job creation.

Based on the study, during the three years of the administration of President Widodo, the working population rose only 134,600, in the midst of massive infrastructure development. The figure is lower and higher than was marked during the previous two governments.

The central bank says the country needs to boost its exports amid rising foreign debt, as the government seeks to accelerate its infrastructure projects.

Bank Indonesia senior deputy governor Mirza Adityaswara stated that while Indonesia’s foreign debt was still under control, the country’s deficiency in exports has resulted in the current deficit reaching historic proportions.

Indonesia has an external debt to GDP ratio of 34.5 per cent, similar to Thailand’s 33.9 per cent, he said, adding, however, that Indonesia’s external debt to current account receipts was 169.9 per cent, while Thailand and Malaysia’s were just 46.4 and 9.0 per cent, respectively.

Still Payable 

Indrawati assured all that with its growing economy, the ability of the country to cover its debts is still high, supported by export revenue. ​The government collected Rp 78.94 trillion in tax revenue, or 11.17 per cent more than last year – the biggest increase in four years.

Rising global oil prices boosted non-tax revenue by 33 per cent to Rp 18.89 trillion. Overall, the government has so far managed to collect 5.3 per cent of the Rp 1,894.7 trillion target set in the 2018 state budget.

Total government spending thus far – including spending by ministries, government agencies, village funds and funds transferred to regional governments – stands at Rp 138.4 trillion, having increased 3.9 per cent from January last year. The government has set a total spending target of Rp 2,220.7 trillion for this year.

Still, if the global oil prices remain at their current level of $65 per barrel – 35 per cent higher than the $48 per barrel outlined in the 2018 state budget – the government would have to devise alternatives to mitigate its risk.

According to a government simulation, a dollar increase in the oil price would lead to a Rp 200 billion to Rp 900 billion budget surplus.​