Government Plans to Incur Large Debt, State Fiscal Space at Risk of Compression

Rupiah (Photo: Antara)

JAKARTA - Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira said that large-scale debt withdrawals are expected to affect debt interest payments in the coming years, especially in 2025.

Previously, the government planned to pay debt interest in 2025 of IDR552.9 trillion, a figure that is 10.8 percent higher than the outlook for debt interest payments in the 2024 budget year of IDR499 trillion.

In addition, Bhima emphasized that the figure is very significant and can suppress the country's fiscal space. Therefore, the government needs to design a mature strategy to maintain the country's economic and financial stability in the future.

"Large-scale debt withdrawals can affect debt interest payments in the following year. In 2025 alone, there is IDR552 trillion in debt interest payments. This is a very large figure. Fiscal space can be suppressed," he told VOI, Thursday, August 22.

In addition, Bhima said that this large debt withdrawal also poses potential risks related to liquidity in the banking sector and this condition can have an impact on the stability of the financial system.

"There is a risk of a liquidity struggle between banks and the government. Depositors may be more interested in buying Government Securities (SBN) with higher interest rates than saving money in banks," he explained.

Previously, the government planned to pay debt interest in 2025 of IDR 552.9 trillion, a figure that is 10.8 percent higher than the outlook for debt interest payments in the 2024 budget year of IDR 499 trillion. This figure does not include principal debt payments.

"This amount consists of domestic debt interest payments of IDR 497.62 trillion and foreign debt interest payments of IDR 55.23 trillion," the government wrote in the document Book II of the Financial Note and the 2025 Draft State Budget, quoted Sunday, August 18.

Despite double-digit growth, the growth in debt interest payments in the 2025 budget year was lower when compared to the growth in the 2024 budget year of 13.4 percent (against the realization of payments in the 2023 budget year).

Meanwhile, the government revealed that the calculation of the amount of debt interest payments for the 2025 fiscal year broadly includes interest payments on outstanding debt originating from accumulated debt from previous years.

In addition, it also takes into account the debt financing plan for the 2024 and 2025 fiscal years, the debt portfolio management program plan (liabilities management).

Furthermore, the calculation of the amount of debt interest payments is also based on several assumptions, such as the rupiah exchange rate against foreign currencies, especially the United States dollar (USD), Japanese yen (JPY), and euro (EUR).

Then, the 10-year SBN interest rate, reference loan interest rates and their spread assumptions, SBN issuance discounts, and estimated costs of procuring new debt.

Meanwhile, the development of debt interest payments in 2025 does not include debt principal payments.

For information, looking at the spending plan in the 2025 RAPBN of IDR 3,613.1 trillion, thus debt interest spending covers 15.3 percent of the total budget. On the other hand, this payment is only interest on debt, not including the debt due that the government is required to pay.

Meanwhile, the Ministry of Finance (Kemenkeu) noted that the government's debt maturity profile in 2025 reached IDR800.33 trillion consisting of the maturity of Government Securities (SBN) of IDR705.5 trillion and the maturity of loans worth IDR94.83 trillion. Thus, the next government needs to prepare around IDR1,353.23 trillion to pay the principal and interest on debt.