The World Bank has raised Indonesia's status from middle-income to upper-middle-income nations as of July 1, 2020 - Photo by the Ministry Office

JAKARTA (TheInsiderStories) – The World Bank approved a loan facilities worth of US$300 million to assist Indonesia in implementing financial sector reforms that will help sustain economic growth and achieve the country’ shared prosperity goals, said the finance ministry today (03/23).

As reported, the minister, Sri Mulyani Indrawati, has announced to widens the 2020 State Budget’ deficit 2.5 percent of gross domestic products (GDP). The additional deficit its estimating worth of Rp120 trillion (US$7.50 billion).

“In recent years, the government has taken important steps to strengthen the financial sector, particularly the financial oversight and crisis management. A further acceleration of reforms is now needed to finance the infrastructure gap and broaden economic opportunities for individuals and firms in Indonesia,” said Luky Alfirman, director general at finance ministry in a written statement.

He explained, the loan facilities will us to support Indonesia’ reform agenda in three key policy areas. First, increase the size of the financial sector by expanding its outreach, broadening financial markets products and mobilizing long-term savings. This will increase the availability of funds and access to financial opportunities for both individuals and firms, he adds.

Second, improve the efficiency of the financial sector by making financial practices more transparent, reliable and technology-oriented. This will benefit both individual and enterprises by helping to channel savings into the most productive investment opportunities in a less costly, faster and safer way.

Third, strengthen the resilience of the financial sector to withstand shocks, by strengthening the resolution framework, promoting sustainable finance practices and establishing disaster risk finance mechanisms. This will help Indonesia protect its people and assets in case of shocks, said the director.

“A sound and well-functioning financial sector is critical to sustain Indonesia’ growth and to achieve the government’ economic growth and poverty reduction goals, particularly amidst the continued challenging global conditions,” said Satu Kahkonen, World Bank Country Director for Indonesia and Timor-Leste at the same day.

Earlier, Alfirman has stated, that the government considered to raises loans from World Bank and Asian Development Bank (ADB) to finances the widening of 2020 State Budget deficit. According to him, in the middle volatile markets, every governments need to do maneuver to protect the domestic economy.

“We also talked with multilateral agency such as ADB and the World Bank,” he told reporters through a video conference on March 18. But, he conveyed, Indonesia still open to reaches the global market by issuing global SUKUK, Samurai Bond or Eurobond.

Alfirman also claimed, the government still pocketing the remaining budget Rp1.3 trillion to cover the deficit and demand for placement is still big. If the conditions getting worst, he continued, the government have other options through Financial System Stability Coordination Forum, Crisis Management Protocol, and other policies.

Initially, in this year, the government set the deficit 1.76 percent of GDP. Amid coronavirus outbreak the ministry must spends around Rp147.90 trillion for fiscal stimulus or additional deficit 0.8 percent of GDP.

In 2020, the government set economic growth at 5.3 percent, inflation at 3.1 percent, the average exchange rate of Rp14,000 per US Dollar, the state treasury coupon rate of 5.4 percent, oil price US$63  barrel. oil lifting around 755 thousand barrels, and lifting of natural gas at 1.19 million barrels.

Then, the state revenues are set around Rp2,223 trillion and the government spending Rp2,540.4 trillion. With these assumptions, the government expect an unemployment rate at 4.8 – 5.0 percent, poverty rate 8.5 – 9.0 percent, GINI ratio of 0.375 to 0.380, and a human development index of 72.51.

In 2019, Indonesian recorded a budget deficit Rp353 trillion or 2.2 percent of the GDP. The realization has swelled compared to the 2019 state budget target of Rp296 trillion or 1.8 percent of GDP, and the realization of the 2018 state budget amounting to Rp269.4 trillion.


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