October 17, 2024
JAKARTA – The government is actively implementing state spending to meet the targets of the state budget (APBN), namely by supporting economic growth and improving people’s welfare. To that end, the government has consistently allocated the budget for various priority programs and managed state finances wisely.
However, the gap between state spending and revenue encourages the government to seek additional sources of financing. Therefore, the issuance of government securities (SBN) and the withdrawal of loans serve as effective financing instruments to cover the budget deficit and continue the development progress.
Through careful debt management, the government seeks to meet the financing needs of the APBN and build a domestic SBN market. SBN issuance and loan withdrawals are carried out efficiently while keeping in mind the costs and risks balancing, as well as being accelerated in order to support the role of the APBN as a shock absorber and maintaining growth momentum.
The fulfillment of financing targets remains on-track with a controlled cost of funds. As of Aug. 31, Rp 291.9 trillion has been realized from the 2024 APBN budget financing design that was set at Rp 522.8 trillion.
Along with positive economic growth, the trend of the post-pandemic debt ratio has continued to decline, from 40.73 percent of GDP in 2021 to 39.70 percent in 2022; 39.21 percent in 2023; and 38.49 percent of GDP as of August 2024. Indonesia’s debt ratio is also recorded as relatively lower compared to other countries in the region and globally.
“Of course, we don’t only pay attention to or manage the amount borrowed, but also calculate the risk to be appropriate,” said Director of Strategy and Financing Portfolio of the Finance Ministry’s Directorate General of Financing and Risk Management Riko Amir, at a media event in Anyer, Banten on Sept. 26.
Riko explained that the government’s debt risk is under control and well managed, which can be seen from the management of exchange rate and maturity risks.
The exchange rate is one of the most critical risks that should be watched out for as the composition of Indonesia’s foreign currency debt before 2019 was very high. However, the government has succeeded in continuing to reduce the foreign currency debt portion against the total outstanding debt, from 37.9 percent in 2019 to only 27.9 percent as of August 2024.
“If there is an increase in the exchange rate, we will still be affected but we will not immediately collapse, as only 27.9 percent is affected while the remaining it is in the rupiah portion,” said Riko.
In addition, the government’s weighted average debt time to maturity of the government is around 7.95 years as of August 2024.
“Our view is that the ideal tenor maturity, which is safe for the government, is between 8 and 10 years. As of August (2024), we are at 7.95 years. That means that on average all of our debt will mature in 7.95 years. This means it won’t suddenly jump high in the first year, coming down very low in the second year, and jumping back very high again in the third year. We also profile our debt in a more even condition,” he explained.
According to Riko, another important aspect to consider when borrowing, especially in foreign currency denominations, is the credit rating so as to maintain efficiency in the incurred costs.
With good debt management performance, Indonesia’s credit rating has reached investment grade with a stable outlook from various international rating agencies. On July 30, the S&P credit rating agency maintained Indonesia’s credit rating at the BBB level with a stable outlook, taking into consideration Indonesia’s strong economic growth prospects, prudent APBN management and relatively low government debt burden.
The government has also consistently managed to keep the APBN deficit within safe limits. Until 2019, the deficit was maintained below 3 percent of the GDP. During the COVID-19 pandemic, although the deficit widened to 6.1 percent to finance the handling of the pandemic, prudent, flexible and responsive APBN management ensured that the deficit was able to return faster than planned to 2.35 percent. This continued to improve to reach 1.61 percent of the GDP in 2023.
To accelerate inclusive and sustainable economic growth, the 2025 deficit was designed within a controllable limit of around 2.53 percent.
To finance an expansive, targeted, and measurable APBN, the government plans to finance the 2025 budget of Rp 616,186.1 trillion, consisting of debt financing of Rp 775,867.5 trillion and non-debt financing of Rp 159,681.4 trillion.
The debt financing will come from the issuance of SBN worth Rp 642,562 trillion and loans worth Rp 133,305.4 trillion, the latter which consists of foreign loans of Rp 128.1 trillion which are allocated for financing the APBN deficit and debt portfolio management, as well as activity loans to support national priorities along with domestic loans of Rp 5.2 trillion.
Meanwhile, the 2025 debt financing strategy will be pursued by, among others, controlling the debt-to-GDP ratio within safe limits to support the sustainability of the APBN, prioritizing domestic debt sources, developing domestic financial market deepening instruments and expanding the investor base.
The government also continues to develop creative and sustainable financing, develop debt obligation management schemes and increase transparency and accountability in debt management.
“The government continues to be aware of the impact of global pressure. We always keep the debt financing on track and remain anticipatory. APBN financing is here to protect the community and maintain the momentum of economic recovery,” Riko concluded.