The Finance Ministry has decided to cancel its plan to issue “pandemic bonds”, which were initially prepared as a part of the country’s efforts to fund the COVID-19 response.
The Finance Ministry’s financing and risk management director general, Luky Alfirman, said on Friday that the government would now rather issue debt papers through regular auctions, adding that it could rely on Bank Indonesia (BI) as a last resort to absorb the offered bonds if the market response was cool.
Regulation in Lieu of Law No. 1/2020 allows the central bank to purchase government bonds directly from auctions. Previously, BI could only buy the bonds through the secondary market.
“We will not issue specific bonds, including the pandemic bonds or others,” Luky told reporters in a media briefing. “BI has been allowed to buy bonds through the primary market as a last resort, so we will issue bonds with a regular series instead.”
The government planned in early April to raise Rp 450 trillion (US$30.05 billion) in “pandemic bonds” on top of issuing Rp 549.6 trillion worth of sovereign debt papers, according to Presidential Regulation No. 54/2020 on the state budget revision. BI was likely to dominate the bonds' purchases.
However, in a new strategy unveiled on Friday, it would instead issue Rp 856.8 trillion worth of government bonds from the second quarter through to the end of year to finance the widening budget deficit, which is expected to reach 5 percent of GDP this year. The Finance Ministry raised Rp 221.4 trillion worth of bonds in the first quarter of this year.
Finance Minister Sri Mulyani Indrawati said the government would raise the funds through regular auctions in the domestic market, private placements and foreign-exchange-denominated bonds and retail bonds issuances.
“We need to upsize the bonds issuance to finance the deficit,” Sri Mulyani told the House of Representatives Commission XI overseeing financial affairs on Wednesday. “We will prioritize credibility and transparency to maintain a good track record in order to capitalize on the market when the opportunity arises.”
The government is hoping to raise Rp 132 trillion from the global bonds, Rp 60 trillion from retail bonds and the remainder from weekly auctions of government debt papers and sharia bonds.
The government needed to raise at least Rp 35 trillion to Rp 45 trillion every two weeks to meet the financing needs, Luky said.
The government recently unveiled Rp 436.1 trillion worth of stimulus packages to boost healthcare spending, social spending and tax incentives amid the pandemic.