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Experts view Prabowo’s 50% debt-to-GDP ratio risk to fiscal stability
Experts warned that Prabowo's view implied a lack of understanding, which could risk the country’s fiscal sustainability if left unchecked.
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Presidential candidate pair Prabowo Subianto (right) and Gibran Rakabuming Raka (left) talk to the press after the third 2024 presidential election debate at Istora Senayan in Jakarta on Jan. 7, 2024. The third debate covered issues of international relations, defense and security. (Antara/Fakhri Hermansyah)
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residential candidate Prabowo Subianto said taking Indonesia’s outstanding government debt to 50 percent of gross domestic product would pose no problem to the country, but experts have warned that such a view could risk the country’s fiscal sustainability if left unchecked.
In the third round of the electoral debate, Prabowo highlighted that Indonesia currently has one of the best debt ratios in the world, a statement that has a share of truth in and of itself, before he played down the risk of incurring more debts in the future.
“We can get to 50 percent [of GDP]. No problem there. We have never defaulted; we have never defaulted. We are respected in the world,” said Prabowo in Sunday's debate.
Debt at 50 percent of GDP is an acceptable ratio according to budget discipline dictated in Law No. 17/2003 on state finances, which bars government debt from exceeding a 60 percent of GDP threshold. This was put in place to safeguard the country’s fiscal governance and avoid a crisis similar to the one Indonesia faced in 1997-1998.
At that time, the country’s debt-to-GDP ratio was logged at 57.7 percent before ballooning to 88.7 percent at the beginning of this century, when international rating agencies warned investors that the country had a very high default risk, partly due to its economic woes.
Indonesia has seen its debt management improve by booking a ratio of around 30 percent of GDP after implementing the law and it has not breached the debt limit since.
Having a relatively low debt-to-GDP ratio helped the country maintain a healthy fiscal condition compared with other countries when the COVID-19 pandemic hit.
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