Last week, the International Monetary Fund (IMF) warned that global debt is now higher than before the global financial crisis. The IMF estimates that global debt reached USD $164 trillion, equivalent to 225 percent of global GDP, with China being a key booster over the past decade. The IMF warned that nations with high government debt are vulnerable to a sudden tightening of global financing conditions. This could disrupt market access and jeopardize economic activity.

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Indonesia's government debt reached IDR 3,938.7 trillion (approx. USD $294 billion) at the end of 2017, up IDR 423.3 trillion from its position of IDR 3,515.4 trillion at the end of 2016. Despite rising, Indonesia's public debt is still safe at 29.2 percent of gross domestic product (GDP).

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Reza Akbar, economist at the Institute for Development of Economics and Finance (Indef), is concerned about rising public foreign debt. Although the government and various analysts repeatedly state that Indonesia's (public) debt-to-GDP ratio is safe at a level below 30 percent, Akbar says debt should be seen in relation to government revenue.

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The government of Indonesia says the budget deficit (set in the state budget) and debt ratio are safe. In Indonesia's 2017 State Budget the government targets a 2.41 percent of gross domestic product (GDP) budget deficit (below the legal limit of 3 percent of GDP as stipulated by Law No. 17/2003). Meanwhile, Indonesia debt-to-GDP ratio was 28 percent at end-2016, a very comfortable ratio (for comparison, Japan's debt ratio exceeds 200 percent of GDP).

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The central bank of Indonesia stated that Indonesia's foreign debt grew 6.3 percent (y/y) to USD $319.0 billion in April 2016. Foreign debt of Southeast Asia's largest economy in April consists of private sector external debt (USD $165.2 billion) and public sector external debt (USD $153.8 billion). Indonesia's private sector foreign debt continued to ease as local companies have been more careful in taking up new foreign debt due to the weakening rupiah in 2013-2015. In April, private sector external debt fell 1.1 percent (y/y).

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Indonesia's public debt - as a percentage of the nation's gross domestic product (GDP) - currently stands at 27 percent, or roughly IDR 3,200 trillion (approx. USD $241 billion). This debt is manageable and actually quite low compared to other key emerging economies or advanced economies. For example, Malaysia's and Brazil's public debt-to-GDP ratios reached 56 percent and 70 percent, respectively. Meanwhile, the ratios of the USA and Japan stand at 105 percent and 246 percent, respectively. However, the level of debt is not that important. The important question is how is this debt used?

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Although a huge amount of debt paper will mature in 2016, there is few concern that the Indonesian government and the nation's private companies will fail to meet their debt obligations. Per 17 February, total outstanding debt paper that is to mature in 2016 stands at IDR 320.9 trillion (approx. USD $23.8 billion), consisting of IDR 268.1 trillion (approx. USD $19.9 billion) of government bonds (Surat Utang Negara or SUN) and IDR 52.8 trillion (approx. USD $3.9 billion) of private sector corporate bonds. Why are there no major concerns about Indonesia's debt situation in 2016?

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Hutang Pemerintah Indonesia meningkat tajam. Pada akhir tahun 2015, total hutang Pemerintah mencapai Rp 3.089 triliun, atau 27% dari Produk Domestik Bruto (PDB) negara menurut pernyataan dari Kementerian Keuangan Indonesia. Satu tahun sebelumnya - pada akhir 2014 - rasio hutang negara terhadap PDB adalah sebesar 24,7% (atau Rp 2.608,8 triliun). Sejak akhir krisis keuangan Asia di akhir 1990-an, rasio hutang Indonesia terhadap PDB telah menurun dari lebih dari 150% menjadi kisaran yang sehat antara 26-29 % dalam beberapa tahun terakhir.

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Total outstanding foreign debt of Indonesia fell to USD $302.4 billion at the end of the third quarter of 2015, down USD $2.1 billion from the end of the preceding quarter. The central bank of Indonesia (Bank Indonesia) said both public and private external debt declined in Q3-2015 as both sectors were reluctant to take up new (overseas) debt amid global uncertainties, Indonesia's sluggish economic growth, and the fragile rupiah (ahead of looming capital outflows brought about by higher US interest rates).

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The Indonesian government targets to narrow the budget deficit to between 1.9 and 2 percent of gross domestic product (GDP) in 2016 from a projected budget deficit of 2.2 percent of GDP in 2015. Indonesian Finance Minister Bambang Brodjonegoro said on Monday (06/07) that in 2016 the government will continue to prioritize spending on infrastructure development as well as energy and food. President Joko Widodo is scheduled to officially announce the 2016 State Budget in a speech in front of parliament on 16 August 2015.

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When speaking with Indonesians about the performance of the Indonesian government under the leadership of President Joko Widodo, high government debt is usually mentioned as a key source of concern (especially in case the conversation partner is not supportive of the Widodo administration).

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International credit rating agency Fitch Ratings maintained Indonesia’s sovereign rating at BBB-/stable outlook (investment grade). Baradita Katoppo, President Director of Indonesia’s Fitch Ratings branch, said that the firm is positive about the country’s financial fundamentals and prudent fiscal policy as the central bank has showed to prefer stability over growth, resulting in slowing credit growth and rising foreign exchange reserves in Southeast Asia’s largest economy. Economic growth is expected to fall to 5.1 percent (y/y) in 2014.

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As the market already expected that Indonesia’s benchmark interest rate (BI rate) would be kept at 7.50 percent in June 2014, the Indonesian rupiah exchange rate did not undergo any significant fluctuations on Friday’s trading day. Based on the Bloomberg Dollar Index, the currency had depreciated 0.05 percent to IDR 11,796 per US dollar by 16:25pm local Jakarta time. The US dollar had to cope with some pressures due to US retail sales (rising only +0.3 percent in May 2014) and weaker US jobless claims data.

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