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Jakarta Post

Indonesia to maintain debt sustainability despite COVID-19 relief spending: ADB

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Mon, April 27, 2020   /   09:07 am
Indonesia to maintain debt sustainability despite COVID-19 relief spending: ADB The logo of the Asian Development Bank (ADB) is displayed on the gates of the bank's headquarters in Central Jakarta. (Antara/Antara)

Indonesia’s debt is expected to remain sustainable this year despite a steep increase in the planned issuance of government bonds to finance the country’s widening budget due to a big COVID-19 stimulus check, the Asian Development Bank (ADB) has said.

ADB Indonesia country economist Yurendra Basnett said that the country had entered the COVID-19 crisis with one of the lowest debt-to-gross domestic product (GDP) ratios in the world, while the government’s lower revenue and higher state spending would likely push the ratio higher.

“The important point is that the increasing debt-to-GDP ratio will still remain at the sustainable level of below 40 percent,” he told reporters during a limited media briefing on Thursday. Basnett projected that Indonesia's debt-to-GDP ratio would reach 37.8 percent this year.

Indonesia had a debt-to-GDP ratio of 29.8 percent at the end of 2019, lower than that of many countries, including Japan (238 percent), Singapore (112 percent), the United States (106 percent) and Malaysia (50.7 percent). Under Law No. 17/2013 on state finance, the government must maintain a debt-to-GDP ratio of below 60 percent.

Read also: Explainer: Indonesia to finance coronavirus battle mostly through debt

The government has increased this year's budget financing by raising Rp 1 quadrillion (US$64.35 billion) in loans, a 286 percent jump from the original target of Rp 351.9 billion as stipulated under the newly enacted Presidential Regulation (Perpres) No. 54/2020 on the revised 2020 state budget.

Under the regulation, the government also plans to offer Rp 549.6 trillion in sovereign debt papers, 41.2 percent higher than Rp 389.3 trillion as originally planned, while it also plans to raise Rp 450 trillion through the issuance of “pandemic bonds”.

“The Indonesian government has been quite prudent in its debt management so far,” ADB vice president for Southeast Asia, East Asia and the Pacific Ahmed M. Saeed said during the press briefing. He added that the significant contraction in economic activity, both around the world and in Indonesia, was “absolutely essential” as a way out of the health crisis.

“Raising debt and spending it on the COVID-19 fight is appropriate and the right thing for the government to do,” Saeed said.

The ADB has approved a $1.5 billion loan to help finance Indonesia’s efforts to mitigate the impacts of the COVID-19 outbreak on public health and the economy.

Indonesia has set aside Rp 436.1 trillion of the 2020 state budget, or 2.5 percent of GDP, to fund public health needs, safety net programs, relief assistance for small and medium businesses, and relief assistance for manufacturing and tourism companies that have been affected by the outbreak.

Official data on Thursday afternoon showed that the virus had infected more than 8,800 people in Indonesia, with a death toll of 743.

Read also: ADB approves US$1.5b loan to support Indonesia’s pandemic response

The government is looking to finalize by next week a new Rp 35.3 trillion  tax incentive for 18 sectors that have been battered by COVID-19, including the tourist and the food and beverage sectors. The incentive package offers individual income tax exemptions, import tax deferrals and corporate tax discounts, similar to the earlier stimulus package offered to the manufacturing sector.

Perbanas Institute economist Piter Abdullah said on Friday that Indonesia's debt-to-GDP ratio would increase to only around 35 percent with the current stimulus packages.

“However, there is a huge possibility that the stimulus [packages] will grow, as it is not enough,” Piter told The Jakarta Post, saying that the government would need to provide between $70.5 billion and $90 billion to stimulate the health sector and the economy. 

“Thus, the debt burden will rise but the debt-to-GDP ratio will remain below 40 percent and below the current legal limit,” he said.