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High debt to shrink fiscal space for Prabowo administration
Amid limited fiscal space from Rp 3.74 quadrillion in government debt due to mature during his presidency, economists suggest the incoming government to cut the fat from both the administration and the state budget to prioritize productive spending.
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President Joko “Jokowi” Widodo (left) speaks with Defense Minister Prabowo Subianto on Feb. 19, 2024 during the inauguration ceremony of the National Defense Central Hospital (RSPPN) in Jakarta. (AFP/Bay Ismoyo)
T
he high government debt incurred during the two consecutive terms of President Joko “Jokowi” Widodo is expected to leave president-elect Prabowo Subianto with limited fiscal space for realizing his campaign promises and policy programs.
According to Finance Ministry data, government debt of over Rp 3.74 quadrillion (US$230 billion) is set to mature in the next five years, precisely during Prabowo’s presidency, which will need to repay some Rp 800 trillion in each of its first three years in a mix of bonds and loans.
Wijayanto Samirin, an economist at Paramadina University, told The Jakarta Post on Thursday that the Rp 800 trillion due in 2025 was just the “principal amount” and estimated the total payout could reach as high as Rp 1.3 quadrillion, taking interest rates into account.
That is over 43 percent of the projected total revenue of around Rp 3 quadrillion the government plans to collect next year.
“This is a dark yellow light, closing in on red,” said Wijayanto, using traffic light signals to analogize the rising risk indicated by the debt service ratio, a comparison between debt and income.
The government would typically issue another debt to repay matured debt, a method known as refinancing, to maintain cash balance between servicing regular spending and debt payments.
