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Jakarta Post

Indonesia raises $1.5b from government bonds to fund fiscal deficit

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Wed, July 29, 2020   /   06:31 pm
Indonesia raises $1.5b from government bonds to fund fiscal deficit Rupiah banknotes at a money changer in Jakarta on Jan. 12, 2015. Indonesia has raised Rp 22 trillion (US$1.51 billion) from government bonds issuances as of Tuesday as it moves to fund the fiscal deficit and the country’s COVID-19 response. (JP/Jerry Adiguna)

Indonesia has raised Rp 22 trillion (US$1.51 billion) from government bonds issuances as of Tuesday as it moves to fund the fiscal deficit and the country’s COVID-19 response.

The government received total bids of Rp 72.78 trillion from an indicative target of Rp 20 trillion from both domestic and foreign investors, which means the bonds were oversubscribed by 3.6 times. The bonds series have varied maturity periods of five to 20 years, said Finance Ministry director for government debt securities Deni Ridwan.

“Investor confidence in the government bonds has increased,” Deni said in a statement on Wednesday. “The rising participation from foreign investors and the high level of banking liquidity amid slowing credit demand have bolstered incoming bids.”

The big appetite of investors has lowered the weighted average yield for the bonds compared to the previous auction. The five-year benchmark bonds, for instance, now offer a yield of 5.94 percent versus 6.29 percent in the previous issuance, while the 10-year bonds have a 6.81 percent yield from the previous 7.05 percent.

The 15-year and 20-year bonds offer a yield of 7.28 percent and 7.4 percent from the previous 7.54 percent and 7.56 percent, respectively.

The government plans to raise Rp 35 trillion to Rp 40 trillion from bonds issuances every two weeks throughout the remainder of the year as it seeks to raise a total of Rp 990.1 trillion in the second half of the year to fund the fiscal deficit.

The government expects the state budget deficit to reach 6.34 percent of gross domestic product (GDP) as it allocated Rp 695.2 trillion for its COVID-19 response to strengthen the healthcare system and rescue the economy, which is expected to shrink 0.4 percent under a worst case scenario or grow 1 percent under a best case scenario this year.

The country’s financial markets have also been hit by the coronavirus pandemic, with foreign investors dumping Rp 122.4 trillion in Indonesian assets as of July, according to the ministry’s data. The selling spree has weakened the rupiah exchange rate and caused a spike in yields of government debts earlier this year.

Bank Indonesia agreed earlier this month to buy Rp 397.5 trillion worth of government bonds in a burden sharing scheme to fund healthcare and social safety net programs amid the coronavirus pandemic. The central bank will fully bear the costs of the bonds.

The burden-sharing scheme between the central bank and the government is expected to start this week and last until this year end.