Indonesia’s Foreign Debt Drops for 3 Months in a Row

Indonesia's Foreign Debt

The government recently delivered good news. Indonesia’s government debt to foreign countries or external debt (ULN) is reported to have decreased. This is revealed by Bank Indonesia’s data, Friday (15/7). It is certainly good news because Indonesia’s previous foreign debt was very worrying.

Bank Indonesia (BI) reported that May’s external debt fell by US$ 3.8 billion from the previous month to US$ 406.3 billion or around Rp. 6,094 trillion (BI July 14 middle rate of Rp. 14,999/US$). Compared to May 2021, the external debt contracted 2.6% year-on-year (YoY).

Government debt recorded a decline in 3 consecutive months. Currently, the debt which is the obligation of the government led by President Joko Widodo is US$ 188.2 billion.

“The position of the Government’s external debt in May 2022 was recorded at 188.2 billion US dollars, down from the previous month’s external debt of 190.5 billion US dollars. Annually, the Government’s external debt contracted by 7.5% (YoY), deeper compared to the previous month’s contraction of 7.3% (YoY),” BI wrote in its official release.

Similar to the previous month, the government under the leadership of President Joko Widodo (Jokowi) who returned to pay maturing Government Securities (SBN), as well as foreign investors who released a lot of Indonesian bonds were the causes of the decline in external debt in May.

Data from BI shows that SBN debt payments in May reached US$ 1.175 billion with a principal of US$ 1.066 billion and an interest of US$ 109 million.

Meanwhile, loans increased to US$ 55,624 billion from the previous US$ 55,064 billion.

“Foreign loans experienced a slight increase from the previous month, especially bilateral loans from several partner institutions aimed at supporting the financing of several priority programs and projects,” BI wrote.

Then foreign investors who continue to release SBN also make external debt decline. Based on data from the Directorate General of Financing and Risk Management (DJPPR) of the Ministry of Finance, at the end of May, foreign ownership in the SBN market reached Rp. 795.73 trillion, or a decrease of Rp. 32 trillion from the end of April.

The large capital outflow was due to the United States (US) central bank aggressively raising interest rates, thus triggering an increase in US Treasury bond yields (Treasury).

Meanwhile, based on creditors, of the top 5 countries, only debt to Hong Kong has increased.

Debt to Singapore decreased for 3 months in a row and debt to Japan fell for 2 months in a row. Debt to the US, which soared and hit a record high in April, decreased by US$34 million, to US$34,864 billion.

Debt to China also decreased for the second month in a row. In May, the value was US$ 21.779 billion or Rp 326.7 trillion, down around Rp 2.9 trillion from the previous year. Of the total debt to China, government debt is only US$ 1.58 billion, while private debt is US$ 20.19 billion.

According to the BI report, by sector, the largest private external debt came from the financial and insurance services sector, the electricity, gas, steam/hot water, and cold air supply sector, the mining and quarrying sector, and the manufacturing industry sector, with a share of 77.3%. of the total private external debt.

This external debt remains dominated by long-term external debt with a share of 74.4% of total private external debt.

With the decline in government and private external debt, the ratio of external debt to gross domestic product (GDP) fell to 32.3% from the previous 32.6%.