The government had raised Rp 630.5 trillion worth of SBN as of June this year, including $4.3 billion from a three-tranche United States dollar denominated bond in April and $2.5 billion from a three-tranche global sukuk (sharia-compliant bond) last month, according to the Finance Ministry’s financing strategy and portfolio director, Riko Amir.

“The market will not be able to absorb all of the Rp 900.4 trillion worth of bonds and therefore there will be a burden sharing scheme between the government and Bank Indonesia,” Riko said in a discussion on Thursday. The government, he went on to say, was still in negotiations with the central bank on the details of the scheme.

The central bank and the government are set to sign an agreement on a bond sale program worth Rp 574 trillion at zero interest or below the market rate of 7 percent, which will be the largest debt monetization program among developing economies.

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Under the agreement, Bank Indonesia (BI) will buy Rp 397.6 trillion worth of bonds with zero yields for healthcare and social safety net programs, among other things.

The central bank will also purchase Rp 123.4 trillion worth of bonds with a 3.25 percent yield to fund relief programs for small and medium businesses as well as Rp 53.57 trillion worth of bonds to rescue big businesses with a 4.25 percent interest rate, the current benchmark rate.

“BI is ready to share the burden not only in the financing efforts but also those related to the debts,” BI Governor Perry Warjiyo told lawmakers on Monday, adding that the scheme would ease the government’s burden for paying higher interest rates as a result of the widening deficit.

The central bank has already been buying government bonds in auctions, although in small portions, to help finance the government’s spending. BI has so far bought Rp 30.33 trillion in government bonds directly at auctions and bought another Rp 166.2 trillion of bonds in the secondary market to help stabilize the country’s currency.

Under an emergency law issued by President Joko "Jokowi" Widodo to respond to the COVID-19 outbreak’s economic impacts, BI is allowed to buy government bonds directly at auctions. Previously, the central bank could only buy the debt papers on the secondary market.

The government is facing the daunting task of borrowing Rp 1.53 quadrillion this year to fund the budget deficit, which is expected to reach 6.34 percent of gross domestic product (GDP), as well to finance investments and repay its debts.

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This is an increase from a previous borrowing needs projection of Rp 1.4 quadrillion announced by the government in April, as it has now allocated Rp 695.2 trillion budget to strengthen the healthcare system and bolster the economy amid the pandemic.

According to the ministry’s presentation materials, the borrowing needs will increase the country’s debt-to-GDP ratio to around 37.64 to 38.5 percent by the end of year from around 30 percent in 2019.

“We will maintain the debt ratio within the safe limit of below 60 percent of GDP and we will be prudent in managing the debts while also supporting the countercyclical policies,” said Riko.

The coronavirus pandemic has ravaged the country’s economy as the government now expects a full year growth of only 1 percent under a baseline scenario or a 0.4 percent contraction under a worst-case scenario.