Adrian Wail Akhlas, Jakarta – Indonesia raised another Rp 22 trillion (US$1.48 billion) on Tuesday from government bonds to fund the country's fiscal deficit and the costly fight against the unfolding pandemic, with the central bank participating in the tender.
The Finance Ministry received incoming bids of Rp 106 trillion – the second-highest bids volume throughout the year – from both domestic and foreign investors.
"The demand for government bonds is being driven by national banks that have ample liquidity and rising participation from foreign investors," said the ministry's director for sovereign debt papers, Deni Ridwan, adding that foreign investors made up 33 percent of the incoming bids.
"Rising participation from foreign investors showed that their trust in Indonesia's economic prospects has begun to recover," he went on to say.
The bond series have varied maturity periods of three months to 28 years, according to the ministry's data, with yields ranging from 3.25 percent for the three-months tenure to 7.4 percent for 28-year bonds.
The government faces the daunting task of raising Rp 990.1 trillion in the second half of this year to cover a fiscal deficit of 6.34 percent of the GDP, as the country reels from the pandemic impact. It raised Rp 22 trillion from a government bond issuance in July.
The government has allocated Rp 695.2 trillion for the country's COVID-19 response to strengthen health care and rescue the economy, which contracted 5.32 percent in the second quarter, marking the first contraction since the first quarter of 1998.
It expects only little growth of 1 percent or even a contraction of 0.4 percent for the full year, depending on the severity of the virus crisis.
"This is also the first time that Bank Indonesia bought sovereign debt papers to support the financing of non-public goods," Deni added.
Bank Indonesia (BI) and the government have agreed on a debt monetization scheme worth $40 billion, which will see BI buy at least around $27 billion through private placement to finance the crisis response.
Meanwhile, credit ratings agency Fitch Ratings affirmed Indonesia's long-term foreign currency issuer default rating at "BBB with a stable outlook" on Monday, the lower-medium investment grade.
Fitch cited a favorable medium-term growth outlook and low government debt-to-GDP ratio against high dependence on external financing among the reasons for retaining the rating but also noted issues around low state revenue and lagging structural indicators.
Fitch expects Indonesia's economy to contract 2 percent this year, before rebounding to 6.6 percent growth in 2021 and 5.5 percent in 2022. The rating agency also forecasts Indonesia's fiscal deficit to narrow to 5 percent next year and 3.5 percent in 2022, as most of the pandemic-related expenditure is expected to be temporary.
Separately, Bank Mandiri economist Andry Asmoro said prudent fiscal policies in recent years had provided room for policies to deal with the impact of the coronavirus, adding that the burden-sharing agreement between the government and the central bank would help reduce the debt burden.
"The Fed's dovish policy, accommodative policies from BI and stable domestic inflation at a low level will all support the domestic bond market," he said in a note. "Looking ahead, the attractiveness of the domestic bond market could cause a decline in bond yields."