Higher for Longer Inflation, World Bank-IMF Promise to Help Manage Debt Risk

World Bank President Ajay Banga (left) and IMF IMF Managing Director Kristalinawa (Photo: Doc. World Bank)

JAKARTA – The World Bank and the International Monetary Fund (IMF) issued a joint statement regarding the increase in financing risks as global inflation has not subsided.

World Bank President Ajay Banga stated that inflation rates which are still at high levels currently increase the financial vulnerability of countries in the world.

"The World Bank and IMF have long worked closely together to overcome debt challenges, both in operational work in each country and at the global level," he said this week.

According to Ajay, in the context of increasing debt vulnerability, there is a new urgency to increase collaboration, build and utilize each other's areas of expertise.

"We will increase our cooperation to help prevent a further increase in debt vulnerabilities, helping countries to strengthen debt management and transparency and public finances," he said.

On the same occasion, IMF Managing Director Kristalina Georgieva said that both parties agreed to encourage progress on the Low Income Country Debt Sustainability Framework.

This is intended to better take into account current challenges.

“We will also deepen our support to creditors and debtors involved in debt restructuring and will work further with our partners to improve the restructuring process, including under the Common Framework, building on the efforts we launched at the Global Sovereign Debt Roundtable,” said Kristalina.

Indonesia anticipates an increase in debt interest

Previously, the Minister of Finance (Menkeu) Sri Mulyani had stated that the inflation rate, especially in developed countries, was still quite high and was expected to last for a long time (higher for longer).

Based on this projection, the government is said to have taken anticipatory steps by providing more space for fiscal instruments to be able to overcome future pressures.

This effort is reflected in the drafting of the 2024 State Budget which is currently being discussed with the House of Representatives (DPR).

The minister explained that next year's budget deficit is designed to be smaller than this year's.

In her notes, in the 2024 Draft State Budget the budget deficit is set at IDR 522.8 trillion.

This figure is equivalent to 2.29 percent of the Gross Domestic Product (GDP). Meanwhile, for this year, the deficit is targeted at IDR 598.2 trillion or 2.84 percent of GDP.

"The deficit is maintained so that we are able to face and anticipate a situation that is not good from a global perspective. "This is also to anticipate global interest rates and inflation soaring so that the cost of funds (cost of funds from financing/debt) is also high," stressed the Minister of Finance in mid-August.