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External debt up, driven by sukuk issuance
Indonesia’s external debt rose in February, driven by foreign capital inflows into the government’s sukuk (Islamic bonds), according to data from Bank Indonesia (BI)
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span>Indonesia’s external debt rose in February, driven by foreign capital inflows into the government’s sukuk (Islamic bonds), according to data from Bank Indonesia (BI).
The country’s external debt, which includes government and private sector borrowing, increased 8.8 percent year-on-year (yoy) to US$388.7 billion in February. The government’s yoy borrowing growth in February outpaced the previous month’s 7.2 percent yoy growth.
The government and central bank’s borrowing recorded a 7.3 percent yoy growth in February to $190.8 billion. The growth was almost double the 3.9 percent yoy growth recorded in the previous month, driven by foreign capital inflows into the domestic bond market and coupled with the issuance of $2 billion in sukuk in
February.
The Finance Ministry had issued a $750 million green global sukuk with 5.5 years maturity, as well as $1.25 billion in regular global sukuk with a 10-year maturity date in February, both of which are oversubscribed
by 3.8 times.
Indonesia welcomed Rp 91 trillion ($6.49 billion) worth of foreign capital year-to-date (ytd), Rp 75 trillion of which went to the sovereign bond market and the remainder was invested in the stock market, BI deputy governor Mirza Adityaswara said recently.
External borrowing from the private sector, which also includes that of state-owned enterprises (SOEs), was recorded at $1.3 billion in February, up by 10.8 percent yoy — relatively flat compared to the previous month’s yoy growth but it outpaced the growth of the government’s external debt over the same period.
Most of the private sector’s external debt was concentrated in four sectors, BI data revealed, namely financial and insurance services, manufacturing, electricity, gas and steam procurement and mining. The sectors grabbed a 74.2 percent market share of the private sector’s total external debt.
Institute for the Development of Economics and Finance (Indef) economist Bhima Yudhistra Adhinegara said the outlook of the global financial market, marked by the turnaround of the United States Federal Reserve’s more dovish tone this year compared to in 2018, had led emerging country like Indonesia to be seen in a positive light by foreign investors.
Such a situation, coupled with BI’s monetary policy stance that still maintained relatively high benchmark rates, made bonds issued by Indonesian corporations considerably attractive for foreign investors, Bhima said.
“There was huge interest from foreign investors to buy Indonesian corporate bonds as they offered interesting yield amid our high interest rates at a time when [the global environment] had a more dovish outlook,” said Bhima.
While domestic lending had grown within BI’s targeted range, Samuel Sekuritas economist Lana Soelistianingsih said most of the lending went into government-related projects, which therefore highlighted a lack of willingness by domestic banks to lend to the private sector, prompting the latter to seek sources of funding from abroad.
“Many of the loans went to government-related [projects]. There was some [lending] that was funneled to the private sector but it was not as much as those [loans] that were channeled to the government-related [projects],” said Lana, explaining that banks made such moves to secure their bottom lines.
Loan disbursement grew by 12 percent in January, touching the upper range of BI’s target of between 10 and 12 percent this year.
Lana said that Indonesia’s external debt growth also had the potential to accelerate going forward because of persisting structural problem in Indonesia, namely the gap between domestic savings and the massive need for investment.
“When we talk about external debt, there is potential that it will continue to pick up because domestic savings are not adequate to finance investments,” said Lana, emphasizing the need for corporations to hedge their foreign-denominated borrowing so as to avoid any currency risks.
Despite the growth of the country’s external debt, BI said it was still considered at a safe level as external debt-to-GDP was recorded at 36.9 percent as of February, which was relatively unchanged and still within range of peer countries.
Moreover, 86.3 percent of the external debt has a long-term maturity date.
