Ministry of Finance of Republic of Indonesia : Rationale behind Government Debt in 2015

Judul		Rationale behind Government Debt in 2015
Nomor		2/KLI/2016
Tanggal		8 January 2016

Jakarta, 7 January 2016 - 2015 was a momentous year for Indonesian economy. The policy on structural reform was a main reason behind the turnaround of economic growth. Various breakthroughs were implemented. First, The Government reformed budget structures, by: (i) optimizing revenues, (ii) performing more productive expenditure with more qualities, and (iii) performing sustainable financing. This fiscal reform was aimed at providing more fiscal space for more productive expenditure, for example building infrastructure and enhancing social welfare program.

Second, taking the current global economic growth into account, the Government believed that short term policies are also important in the interest of boosting economic performance. Accordingly, seven packages of economic policies had been launched during September to December 2015. In general, the packages of stimuli policies have two main objectives, one is to maintain people's buying power and two is to boost investment by providing stimuli for the economy.

With such dynamics, the Government executed the State Budget in prudent manner as well as sustainable. Based on the provisional realization up to the end of the year 2015, the total realization hit IDR1,810.0 trillion with details as follow:

• K/L's Expenditure for IDR724.3 trillion

The figure was among other used for Capital Expenditure IDR213.3 trillion.

• Non-K/L's Expenditure for IDR462.7 trillion

Non K/L's expenditure was used to improve the welfare of middle-low people as well as to strengthen food sovereignty via subsidized energy and non energy (food, fertilizer, seed, credit on agricultural programs and SMEs, as well as down payment for housing).

• Regional Transfer Fund and Village Development Fund

Regional Transfer Fund and Village Development Fund were used for the operational and development of infrastructure in the Regions.

Other than State Expenditure of IDR1,810.0 trillion, there was also expenditure on financing for State Capital Participation (PMN) for IDR70.4 trillion of which mainly used for infrastructure development. The Realization of State Expenditure and PMN were financed via State Revenue for IDR1,491.5 trillion and debt financing for IDR382.3 trillion or USD27.6 billion.

The net addition of debt has grown to 50.9% from the figure in 2014 of IDR253.2 trillion. The growth on debt was in line with the increase in several posts of infrastructure expenditure such as increase in K/L's capital expenditure for 45%, DAK of 71.9%, PMK of 1,200%, and new allocation of Village Development Fund.

Government's outstanding at the end of 2015 reached IDR3,089.0 trillion (equivalent to USD223.2 billion) with debt ratio to PDB for 27.0%. This condition was lower compared to Government's outstanding at the end of 1998 which was IDR551.4 trillion (equivalent to USD68.7 billion) with debt ratio to PDB was 57.7%. Debt ratio to PDB in 2015 was far lower than the limit set in the Law Number 17 Year 2003 on State Finances which set at 60.0%. The development of debt outstanding and debt ratio to PDB of the year 1988 - 2015 is shown in the table below:

	1998	1999	2000	2001	2002	2003	2004	2005	2006
Outstanding (trillion Rupiahs)	551.4	938.8	1,232.8	1,271.4	1,223.7	1,230.6	1,298.0	1,311.7	1,302.2
Eq. To million USD	67.8	132.2	129.3	122.3	136.9	145.4	139.7	133.4	144.1
Debt to PDB	57.7%	85.4%	88.7%	77.2%	67.2%	61.1%	56.5%	47.3%	39.0%
	2007	2008	2009	2010	2011	2012	2013	2014	2015
Outstanding (trillion Rupiahs)	1,389.4	1,636.7	1,590.7	1,681.7	1,809.0	1,977.7	2,375.5	2,608.8	3,089.0
Eq. To million USD	147.5	149.5	169.2	187.0	199.5	204.5	194.9	209.7	223.2
Debt to PDB	35.2	33.0	28.3	24.5	23.1	23.0	24.9	24.7	27.0

*) Provisional Figures

The Government maintained the debt risk in 2015 manageable. This was shown in the debt risk indicators such as, longer average of maturity debt for 9.7 years, which was a relatively safe period (no refinancing risk). Debt portion in the currency of Rupiahs consistently increased up to 56.2% of the total debt, thus reducing the risk of exchange rate change. The portion of debt with fixed rate was 86.2% of the total debt, made it relatively safe from the change of global interest rate.

With healthier State Budget structure and more productive state expenditure, State Budget 2015 became the foundation for infrastructure development acceleration amidst global uncertainty. At the same time, the Government always implements prudent management for State Budget which results in stronger and more sustainable fiscal.

Act. Bureau Head

(signed)

Langgeng Subur