Indonesia to maintain debt sustainability despite Covid-19 relief spending, says ADB

  • Indonesia
  • Monday, 27 Apr 2020

The logo of the Asian Development Bank (ADB) is displayed on the gates of the bank's headquarters in Central Jakarta. (Antara/Antara)

JAKARTA, April 27 (The Jakarta Post/ANN) - 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.

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.

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