Sharing to Lighten the Debt Burden
The government and Bank Indonesia or BI will continue the burden-sharing scheme this year and next year. This cooperation is considered to be able to ease the debt burden. However, the government was reminded of the risk of an increase in the debt burden for efforts toward national economic recovery.
JAKARTA, KOMPAS — (26/8/2021) The burden-sharing scheme between the government and the central bank in absorbing debt securities issued by the government can reduce the debt interest burden. Nevertheless, the obligation to pay interest on debt continues to increase due to the high need for financing for economic recovery.
Minister of Finance Sri Mulyani Indrawati at the August 2021 State Budget press conference, Wednesday (25/8/2021), said that the government and Bank Indonesia’s (BI) move to continue the burden sharing of financing the handling of the Covid-19 pandemic saves the year’s debt interest burden for 2021 and 2022.
Based on the calculation of the Ministry of Finance, burden sharing will reduce the debt interest ratio to gross domestic product (GDP) to 2.21 percent in 2021. Meanwhile, without burden sharing, this year’s debt interest ratio could reach 2.4 percent of GDP. Meanwhile, in 2022, a similar scheme can reduce the debt interest ratio to 2.19 percent from 2.43 percent if there is no burden sharing.
The increase in the government’s debt burden is stated in Book II of the Financial Note for the 2022 Fiscal Year. The government allocates a budget to pay debt interest in the 2022 State Budget Draft of Rp 405.9 trillion. This amount consists of payments of domestic interest of Rp 393.7 trillion and foreign debt interest of Rp 12.17 trillion.
According to Sri Mulyani, on the one hand, BI’s ownership of state securities (SBN) can reduce the interest burden on government debt. However, on the other hand, the ownership of SBN, which is still dominated by BI and banks, indicates that economic conditions are not yet fully normal.
On the same occasion, the Director General of Management, Financing, and Risk at the Ministry of Finance Luky Alfirman said, SBN absorbed by BI reached Rp 215 trillion this year and Rp 224 trillion next year, divided into Clusters A and B. Cluster A SBN is used for health care, while SBN Cluster B is for handling humanitarian issues in social protection programs.
Economic recovery
Director of the Center of Economic and Lawa Studies (Celios), Bhima Yudisthira said, although the government is trying to reduce the debt interest burden this year and next year, the increasing debt interest payments have the potential to hamper economic recovery.
“The interest portion of debt has sucked up 21 percent of total central government spending in 2022. Encouraging economic recovery will be difficult if debt interest exceeds the allocation (national economic recovery program) for the 2022 PEN, which is IDR 321 trillion.” he said.
This condition could be exacerbated by the phenomenon of rush for funds in the financial sector in line with the issuance of rupiah-denominated SBN targeting domestic investors. The owner of the fund will choose to place their investment in SBN with a yield of 6.8 percent, rather than deposit in a bank with an interest rate of 5 percent per year.
PT Bank Mandiri Tbk economist, Faisal Rachman, estimates that the interest burden on government debt will gradually decrease after 2022. This decline is in line with the declining ratio of government debt to GDP. “To suppress the spike in interest rates on debt, the government needs to accelerate economic recovery so that state revenues will increase, especially from taxation,” he said.
Meanwhile, Professor of Accounting and Chair of the Doctoral Program in Environmental Sciences at Unika Soegijapranata Semarang, Andreas Lako, assessed that stopping the debt rate in the current condition of high financing needs is not an easy thing.
Therefore, more effective alternatives are needed, such as boosting tax revenues and spending efficiency, among others, by cutting or eliminating expenditures that are considered less urgent. (DIM)
Source: Kompas Daily. Edition: Thursday, August 26, 2021. Economic and Business Rubric. Page 10.
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