Issuance Of Regional Bonds Must Pay Attention To Fiscal Capacity

Photo: Special

JAKARTA - Economics Director of the Center of Economic and Law Studies (Celios) Nailul Huda assessed that the issuance of regional bonds must be carried out carefully taking into account the fiscal capacity of each region.

According to him, local governments (Pemda), both at the provincial and district/city levels, need to ensure their ability to repay debts before issuing bonds.

He added, if the local revenue (PAD) is strong, bonds can be a source of development financing, but if PAD is weak, the issuance of bonds can actually endanger the financial condition of the region in the future.

"If you have a strong PAD, the regions may issue bonds for current development financing. But if you don't have a strong regional revenue source, don't dare to issue bonds. This is because in the medium and long term there will be a payment post to pay interest on debt," he explained to VOI, Tuesday, October 7.

According to him, regional bonds are different from loans to PT SMI during the Covid-19 pandemic, whose interest is low, because bonds will compete with other investment instruments, so the interest must be competitive.

He gave an example, if the DKI Jakarta Provincial Government wants to issue bonds, it is necessary to offer yields above 7 percent to make it more attractive than declining deposit interest rates and high State Securities (SBN) interest rates in the range of 6 percent

"Similarly, the current price of gold, which is increasing sharply, can be a challenge for regional bonds," he explained.

Furthermore, Huda explained, the discourse on the issuance of regional bonds emerged in response to the cut in the transfer budget to the regions (TKD) from the central government, and this prompted local governments to increase PAD through various means, including debt.

"For regions that have a strong PAD base, this is not a problem. But for those who stock their PAD, the regional government must be smart in finding other funding sources," he explained.

"Selain menaikkan tarif pajak daerah, Pun ada juga opsi daerah mengeluarkan utang daerah yang membuat keuangan daerah akan tertekan. Keuangan daerah tidak akan sustain jika keuangan daerah bertumpu pada hutang," tambahnya.

Namun, ia mengingatkan, kebijakan berutang bukanlah solusi berkelanjutan dan jika keuangan daerah terlalu bergantung pada utang, kapasitas fiskal akan menyempit dan mengancam keberlanjutan keuangan daerah itu sendiri.

"Utang daerah pun akan berakibat pada kapasitas fiskal daerah akan semakin menyempit ke depan. Maka saya rasa pilihan hutang daerah bukan kebijakan yang bijak dan berbahaya bagi keuangan daerah ke depan," tegasnya.

"In addition to increasing regional tax rates, there is also a regional option to issue regional debt that makes regional finances depressed. Regional finances will not be sustainable if regional finances rely on debt," he added.

However, he reminded, debt policy is not a sustainable solution and if regional finances are too dependent on debt, fiscal capacity will narrow and threaten the sustainability of regional finances itself.

"Regional debt will also result in regional fiscal capacity which will narrow further in the future. So I think regional debt choices are not wise policies and are dangerous for regional finances in the future," he said.