Adrian Wail Akhlas, Jakarta – Indonesia has raised another Rp 62.62 trillion (US$4.05 billion) from government debt papers (SUN) and is in talks with several development banks to raise another $750 million to finance its widening state budget amid the fight against the coronavirus pandemic.
The Finance Ministry's director for government debt papers, Deni Ridwan, said the government had issued three series of bonds through private placements with commercial and shariah banks on Monday.
"Banks are the buyers in the private placements as they look to meet Bank Indonesia's new requirement of higher reserves in government bonds," Deni told The Jakarta Post by text message on Tuesday.
Bank Indonesia (BI) requires that bank buy government bonds after cutting banks' reserve requirement ratio by 200 basis points (bps) for commercial banks and 50 bps for sharia banks, providing the financial system with Rp 102 trillion in liquidity in a move that is expected to help the government fund the COVID-19 battle, Governor Perry Warjiyo said recently.
The government has increased this year's budget financing by raising Rp 1 quadrillion in loans, a 286 percent jump from the original target of Rp 351.9 billion. It will issue nearly Rp 450 trillion worth of "pandemic bonds" and revise up its bond sales target by Rp 160.2 trillion to Rp 549.6 trillion this year to address the widening budget deficit, which could reach 5.07 percent of gross domestic product (GDP).
The government is also in talks to earn $750 million worth of loans from several development banks, namely the Islamic Development Bank, the World Bank and the Asian Infrastructure Investment Bank (AIIB), Finance Minister Sri Mulyani Indrawati said.
"COVID-19 emergency funds worth around $200 million to $250 million from the Islamic Development Bank are in the negotiation process," the finance minister said in a statement on Tuesday.
The World Bank and the AIIB were also committed to providing $250 million in funds each for Indonesia's COVID-19 response, according to the minister. The Asian Development Bank (ADB), meanwhile, has approved $1.5 billion in loans to support Indonesia's efforts to strengthen public health and the economy.
Previously, the country has raised $4.3 billion in dollar-denominated bonds, including the longest-dated 50-year US dollar bond ever issued by an Asian nation, earlier this month. It also sold around Rp 14 trillion of sharia sovereign bonds last week.
The central bank has bought Rp 1.72 trillion in a regular auction on Tuesday last week. It has also bought Rp 2.93 trillion on Wednesday in a "greenshoe option", BI's head of monetary operations Nanang Hendarsah said according to Reuters.
Regulation in Lieu of Law No. 1/2020 issued in March allows the central bank to purchase government bonds directly at auction. Previously, the central bank was only allowed to buy government bonds in the secondary market.
Fitch Solutions expects Indonesia's government debt to average 45.3 percent of GDP between 2020 and 2023 compared to 33.1 percent of GDP in the past five years, as the government rolled out tax incentives, including permanent corporate income tax cuts.
"As a result, the public debt load is likely to increase significantly during this period, even with offsetting tax policies," Fitch noted. "It is likely that the ownership structure of government securities will change to some extent with foreign investors' lowering their holdings considerably and BI seen to expand its balance sheet."
Fitch, however, expressed confidence that, once the worst was over, "Sri Mulyani will ramp up efforts to bring government spending back in line and broaden the revenue base."