Passengers walk in a Transjakarta bus station in Central Jakarta on Thursday. (Antara Photo/Wahyu Putro A.)

Gov't Projects Public Debt at 37% of GDP in 2020

BY :ARNOLDUS KRISTIANUS

OCTOBER 02, 2020

Jakarta. The government has projected that Indonesia's debt to gross domestic product ratio, a gauge for the country's ability to pay off its debt, to increase to its highest level since 2006 amid the government's swelling spending in the Covid-19 economic stimulus. 

Febrio Nathan Kacaribu, the head of the Fiscal Policy Office at the Finance Ministry, said the debt to GDP ratio would increase to 37 percent in 2020 from 36 percent last year. The government had gotten rid of the state budget deficit cap of 3 percent of GDP last March, to accommodate close to Rp 800 trillion ($54 billion) pandemic spendings in healthcare, unemployment benefits, and loan subsidies.  

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“In 2020 the deficit was 6.34 percent of GDP, increasing by more than Rp 1,000 trillion. We predict that the debt to GDP ratio will increase to around 36 or 37 percent,” Febrio told the Globe's sister publication BeritaSatu TV on Thursday. 

Still, Febrio said the level was still manageable relative to other countries in the Southeast Asia region. He said Malaysia's debt to GDP ratio had already over 50 percent, while the Philippines and Thailand are already above 40 percent. 

For Indonesia and its neighbors, such a high level of public debt often carries an exchange rate risk that, in the past, had derailed their economy. At a time of high volatility, foreign investors that hold a lion shares of Indonesia's sovereign debt would sell their holding and rush to exit the country, weakening the rupiah as a result. 

"We in the government must be careful," Febrio said. 

"Once an investor does not feel safe, he will sell rupiah to buy dollars. We are not saying this is something easy, but this must all be accounted for, and we will look at it carefully," Febrio said.

David Sumual, the chief economist at Bank Central Asia, said Indonesia benefited from its prudent debt management in the past year that the country could afford to incur more debts to counter the Covid-19 pandemic impact. Data also showed that Indonesia's public debt level growth has been in line with steady economic growth, David said. 

"Similar to the household economy, as long as our cash flow is still quite good, the increase in debt would actually have a positive impact on a country's economy," David said. 

"We just need to make sure that when we make more debts, the GDP does not contract," he said. 

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