Indonesia's Minister of Finance, Sri Mulyani Indrawati. (Image via Kompas Money)

Sri Mulyani: Indonesia's debt is almost 40% of our GDP

Indonesia's Finance Minister, Sri Mulyani Indrawati, came clean about Indonesia's debt ratio. During a virtual discussion held by the University of Indonesia's Institute for Economic and Social Research (LPEM UI), Sri Mulyani tabulated that the debt ratio is getting closer to 40 percent toward Indonesia's Gross Domestic Product (GDP).

The increase in the debt ratio is caused by the spike in the financing need amid the economic pressure caused by the novel coronavirus disease (COVID-19) pandemic in Indonesia. Before the pandemic, the debt ratio remained at 30 percent.

Moreover, the debt ratio also spiked because Indonesia does not want to rely on debt as the financial source amid the spike of financing need to control the impact of the COVID-19 pandemic and for the National Economic Recovery (PEN) program. On the other hand, the Indonesian Government has to ensure that people still possess consumption power amid pandemic by giving social assistance, despite the fact that the fiscal and tax reception is limited.

Sri Mulyani still claimed that the spike in debt ratio in Indonesia is not as high as in other countries. Yet, this does not mean that Indonesia is as good as it seems. While debt might be the solution for the financing need, the withdrawal is never easy. If investors are not interested in the investment condition in the country, then it will be difficult for them to roll out their cash.

Therefore, Sri Mulyani stated that the Indonesian Government is improving its investment climate amid the COVID-19 pandemic in order to entice more private and foreign investors. One of which is by ratifying the Job Creation Law. Not only the investment climate, but the Indonesian Government also formed Indonesia Investment Authority (INA) to maintain the Sovereign Wealth Fund (SWF).

The deficit in the State Budget also increased, from the initial target at 1.76 percent from the GDP, now at 6.09 percent from the GDP. Hence, the Indonesian Government is forced to change the deficit limit provision, from 3 percent from the GDP to above 3 percent for three years, starting in 2020 to 2022.

Source: https://bit.ly/2NfN7Ve