Economists Reveal Regional Bonds Are Considered Potentially Causing New Fiscal Risks

Head of the Center for Macroeconomics and Finance Institute for Development of Economics and Finance (Indef) Rizal Taufikurahman. (Photo: ANTARA)

JAKARTA - Head of the Center for Macroeconomics and Finance of the Institute for Development of Economics and Finance (Indef) Rizal Taufikurahman assessed that the issuance of regional bonds to close the deficit due to the cuts in the Regional Revenue and Expenditure Budget (APBD) could cause new fiscal burdens in the medium to long term.

According to him, this is due to the obligation of local governments to provide regular budgets to pay interest and principal in debt.

Rizal said that if the issuance of these bonds is not directed at financing productive investment, then the fiscal space for public spending risks shrinking due to debt repayment obligations.

"In the context of DKI, the risk of rollover and sensitivity to market interest rate movements are critical factors that can narrow fiscal flexibility in the future," he told VOI, Tuesday, September 7.

He said regional bonds can only be considered sustainable if they are used to finance projects that are able to generate income or create real fiscal efficiency.

Rizal added that if the use of bonds is only to cover the deficit due to APBD adjustments, it risks delaying fiscal consolidation and increasing interest expense in the long term.

"The balance between maturity, income capacity, and fiscal governance is a determining factor whether this issuance will be a solution or create new problems for regional fiscal architecture," he explained.

The experience of a number of regions in Indonesia, he continued, shows that the issuance of regional bonds is not easy, because it requires complex political processes, administrative readiness, and projects that are able to produce cash flow

"Jakarta can learn from various efforts that failed in the past: the key to success lies in strong governance, transparency, and commercial and separate project designs from the regular APBD. With good market governance and communication, DKI has the opportunity to open new precedents in regional financing through the domestic capital market," he added.

Dia menyampaikan jika Pemda Jakarta berhasil menerbitkan obligasi dengan kredibilitas tinggi, hal ini berpotensi menjadi acuan bagi daerah lain untuk memperluas sumber pembiayaan pembangunan.

Namun, kata Rizal, potensi efek sistemiknya perlu diwaspadai yaitu percepatan penerbitan obligasi secara luas oleh berbagai daerah tanpa didukung regulasi dan disiplin fiskal yang memadai dapat memicu kompetisi utang dan menimbulkan tekanan pada pasar keuangan domestik.

"Karena itu, kerangka koordinasi fiskal antara pemerintah pusat dan daerah mutlak diperlukan agar inisiatif inovatif ini tidak berbalik menjadi risiko makroekonomi baru," ucapnya.

He said that if the Jakarta Regional Government succeeded in issuing bonds with high credibility, this could potentially become a reference for other regions to expand the source of development financing.

However, Rizal said, the potential systemic effect needs to be watched out for, namely that the acceleration of bond issuance widely by various regions without the support of adequate fiscal regulations and discipline can trigger debt competition and cause pressure on the domestic financial market.

"Therefore, the framework of fiscal coordination between the central and regional governments is absolutely necessary so that this innovative initiative does not turn into a new macroeconomic risk," he said.