The National Debt Is at Risk of Swelling Next Year!

Indonesia's Foreign Debt

The increasing risk of depreciating the rupiah exchange rate next year is predicted to cause an increase in the national debt burden. This was conveyed directly by the Minister of Finance, Sri Mulyani (21/12).

Moreover, interest payments on government debt in the 2023 State Revenue and Expenditure Budget (APBN) are still quite high, reaching IDR 441.4 trillion.

“We are still maintaining national debt maturity, which on average is still over 8 years,” she said at the Indonesian Economic Outlook event at the Ritz-Charlton Hotel, Wednesday (21/12/2022).

Sri Mulyani Indrawati said two risks would affect the financing strategy next year, namely the cost of funds (CoF) and exchange rate depreciation or exchange rate risk.

The fiscal burden of bearing debt interest is even heavier because starting next year the government will no longer receive ‘assistance’ through the burden-sharing scheme from Bank Indonesia (BI) as it has been in the last 3 years. The central bank indeed plays a quite crucial role because it bears the debt interest burden to meet financing needs during the Covid-19 pandemic.

“Next year, Mr. Governor [Bank Indonesia] is very supportive of SKB I II and III, we will complete III, this is due to the pandemic situation, hopefully, what the president conveyed will be finished this year. So there is no more special arrangement from Mr. Perry to me, even though we still work closely and intimately.” Sri Mulyani said.

In line with that, the Minister of Finance will also optimize the 2022 Remaining Budget Financing (SiLPA) which can be used next year and increase the portion of financing that is not prone to market volatility shocks.

Furthermore, the risk of swelling debt interest expense is getting bigger along with the trend of increasing benchmark interest rates at the United States (US) central bank.

Director of the Center for Economic and Law Studies Bhima Yudhistira said that the increase in interest rates by Bank Indonesia (BI) in response to the US central bank’s monetary tightening also deserves close attention.

According to him, this will reduce the interest on the government’s debt. Bhima estimates that the peak of the benchmark interest rate hike will occur next year.