Indonesia's public debt as a share of its gross domestic product (GDP) has shown a significant improvement since the Asian Financial Crisis erupted in the late 1990s. From over 150 percent of GDP in 1998, Indonesia's external debt declined to around 28 percent in 2013. This represents a healthy condition compared to many developed countries that are currently in trouble to ease public debt. Similarly, Indonesia's external debt as a percentage of its exports has shown an impressive decline as well; from 179.7 percent in 2004 to 97.4 percent in 2011. These numbers measure the government's ability to make future payments on its debt, thus positively affecting Indonesia's borrowing costs, government bond yields and international credit ratings when this debt is as low as in the case of Indonesia. This development is particularly due to the prudent fiscal policy approach of the Indonesian government and compliance with fiscal rules that set limits on the upper level of debt.
The Indonesian government's external debt consists of bilateral and multilateral loans, export credit facilities, commercial loans, leasing and government securities (SBN) owned by non-residents, issued on both foreign and domestic markets. Government securities consist of government debt securities (SUN) and government Islamic securities (SBSN). Government debt securities consist of government bonds due more than 12 months and Treasury Bills (SPN) due less than or 12 months. Government Islamic Securities consist of both long-term security (Ijarah Fixed Rate/IFR) and Global Sukuk.
Largest Contributors to Indonesian Government Debt
Source: Bank Indonesia (BI)
As of July 2012 around 40 percent of this public debt is borrowed in US dollars and approximately 28 percent in Japanese Yen. Indonesia borrows mostly from other countries; countries that act as creditor account for three thirds of total Indonesian public debt. Most important creditor countries are Japan and the United States. International organizations provide around 25 percent of Indonesia's debt, of which the World Bank, the Asian Development Bank and the International Monetary Fund are the largest contributors.
Around 93 percent of Indonesia's government debt constitutes long term debt, meaning that the debt is due at least one year after the date of indebtedness.
Although in absolute terms Indonesia's government debt has grown by approximately USD 48 billion between 2006 and 2012 (a number which includes debt held by the Central Bank), as a percentage of GDP it has fallen significantly since the end of the Asian Financial Crisis. Only sharp nominal depreciation in late 2008 as well as in early 2009 temporarily led to an increase in the external debt to GDP ratio. The IMF forecasts a further moderate decline in public debt due to rupiah appreciation, falling interest rates, and robust economic growth. Future energy subsidy reduction and tax administration reforms in combination with strong economic growth will support a further decline in public debt. Due to the persistent global economic turmoil, Indonesia's debt to GDP ratio increased a little in the first half of 2012 to 27.3 percent according to Bank Indonesia.
Indonesian Debt to GDP Ratio 2008-2015:
|Debt to GDP
(percent of GDP)
¹ indicates a forecast
Source: International Monetary Fund (IMF)
Macroeconomic shocks will only have a limited impact on Indonesia's public debt ratio. Standard stress tests suggest that even under severe shocks from contingent liabilities, sharp exchange rate movements and higher interest rates, the debt ratio is likely to remain modest. Fiscal contingent liabilities amounting to 10 percent of GDP could raise public sector debt to 30 percent of GDP by 2016. Currency depreciation of 30 percent would raise the debt ratio to about 25 percent of GDP. And an increase in real interests rates would have a smaller effect with the debt ratio reaching around 23 percent of GDP by 2015. Other macroeconomic shocks will likely have more limited impacts than the ones mentioned above.
Fiscal Deficit of the Indonesian Government
Since 2002, Indonesia's budget deficit has been maintained below two percent of GDP. This trend is not likely to continue in 2012 as the government has not cut the massive energy subsidies (both fuel and electricity) that is burdening the budget balance. Although progress has been made in shifting public spending from inefficient subsidies to pro-poor programs, Indonesia is still spending too little money on infrastructure and secondary education. There seems to be scope for increased spending in these fields, something which is in line with government targets in the Medium-Term Development Plan (RPJMN 2010‐2014).
Often Indonesia shows a significant discrepancy between the estimated annual budget deficit and its realized outcome. For instance, in 2010 the government's target was set at 2.1 percent of GDP but its outcome was 0.6 percent. This is caused by ongoing problems in the implementation of spending programs; problems with allocation, efficiency and execution of government spending. It is also a side effect of the success made by the independent Corruption Eradication Commission (Komisi Pemberantasan Korupsi or KPK) as fear of being charged with corruption makes some officials hesitant to spend public money.
Government spending is heavily concentrated at the end of the fiscal year. This can undermine effectiveness and quality of government spending. For that reason the president established a Budget Execution Task Force (Tim Evaluasi dan Pengawasan Pelaksanaan Anggaran, TEPPA) to monitor and accelerate budget execution in 2012. The government's accumulated unspent balance (Sisa Anggaran Lebih) stood at IDR 96.6 trillion by end 2011.
Indonesian Budget Deficit
(percent of GDP)
Source: World Bank