The government is starting to be careful about Indonesia’s future debt position which has the potential to reach Rp9,000 trillion (US$552.5 billion) due to large principal and interest payments, accompanied by the withdrawal of new debt in 2024.
Based on the report of the Ministry of Finance (Kemenkeu), the Indonesian government’s debt increased by Rp91.85 trillion to Rp8,444.8 trillion in June 2024.
In the State Budget (APBN) KiTA document, the July 2024 edition, the country’s debt has reached 39.13 percent of gross domestic product (GDP).
APBN KiTA is a monthly publication of the Ministry of Finance that aims to inform the public about the performance of state revenue, spending, and financing as a form of public responsibility and fiscal transparency.
Yusuf Rendy Manilet, Economist at the Center of Reform on Economics (CORE), sees the trajectory of debt growth in the July-December period in the last two years in the range of 4-8 percent.
“Assuming this trajectory, it will be repeated this year. We estimate that the total government debt will be in the range of Rp8,700-9,000 trillion by the end of 2024,” Yusuf as quoted by Katadata.co.id on Tyesday, July 30, 2024.
When compared to the debt ratio and economic growth assumptions in 2024, then debt growth will be in the range of 5 percent. He also projected the government’s debt ratio to reach 39 percent or 40 percent of GDP.
This will be a tough task for the government to return the debt ratio to a lower level like before the Covid-19 pandemic.
“It takes a fairly high growth push or reducing the proportion of new debt withdrawals to achieve this condition,” Yusuf said.
Meanwhile, state revenues are falling. So, it will be difficult for the government to reduce debt in the short term. However, Yusuf explained that it can be done by encouraging relatively higher economic growth in order to reduce the debt ratio at a lower level.
Tauhid Ahmad, Senior Researcher from the Institute for Development of Economics and Finance (Indef) asked the government to be more careful in managing debt in the future.
“This is a yellow light, yes (debt) is approaching 40% of GDP. The red light is 60% of GDP,” said Tauhid.
Previously, Indonesia had a historical debt position of 30% of GDP and remained positive for fiscal sustainability. If, compared to now it has reached 40%, it will be high risk.
Tauhid admitted that government debt did increase when facing the Covid-19 pandemic. However, logically the government can reduce its debt again when conditions return to normal.
“Now the debt has reached 38% (of GDP) but it seems like the future trend in the next five years will increase. So now there will be a yellow light in the next five years,” he said.
With the risk of debt like this, it can limit the space for fiscal expansion. This is because every year the government must pay debt with quite large interest. Meanwhile, the next risk related to the payment of principal and interest on debt must issue new debt securities.
“If the new principal debt is greater than the interest on debt and principal in the current year, it will be very worrying,” said Tauhid.
Still below the debt ratio limit
Although government debt has increased, the realization of the debt ratio to GDP is still below the debt ratio limit and the target of the medium-term debt management strategy.
“The debt ratio as of the end of June 2024 was 39.13% of GDP, consistently maintained below the safe limit of 60% of GDP,” wrote the Ministry of Finance report in the July 2024 edition of the APBN KiTA document.
The Ministry of Finance reported that the majority of government debt came from within the country with a proportion of 71.12%. This is in accordance with the General Policy of Debt Financing in optimizing domestic financing sources and utilizing foreign debt as a complement.
Meanwhile, based on the instrument, the composition of government debt is mostly in the form of government securities (SBN) which have reached Rp7,418.76 trillion or 87.85%.
