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Prabowo-Gibran Govt's Debt Burden Estimated at Rp1,300tn per Year: IDEAS

19 June 2024 08:36 WIB

TEMPO.CO, Jakarta - The incoming Prabowo-Gibran administration is expected to face a serious debt burden, assessed Yusuf Wibisono, director of the Institute for Demographic and Poverty Studies (IDEAS). He predicted that the annual principal and interest installments could reach Rp1,300 trillion.

The economist explained that in 2024, the government’s debt due would be Rp400 trillion, and increase to Rp3,100 trillion or about Rp800 trillion per year from 2025 to 2028.

“With the debt interest burden at about Rp500 trillion per year, the debt interest burden and debt principal installments in the era of President Prabowo have the potential to reach Rp1,300 trillion annually,” Yusuf told Tempo via a text on Tuesday, June 18.

Yusuf explained that the government's debt has been increasing because new debt is being used to pay off existing debt principal and interest. This has resulted in the debt stock not decreasing, as the debt portfolio management only involves debt switching and buybacks.

He highlighted the lack of basic budget reforms, such as increasing the tax ratio or reducing expenditure. “When tax reform fails to increase the tax ratio, and the bureaucratic reform fails to reduce personnel spending, goods spending, and transfers to regions, [the government] simply resorts to taking more on more debt.”

The government's reasoning for taking on debt is often speculative, with claims that the debt will be used for productive activities to stimulate higher economic growth.“When they fail to promote growth and collect taxes, [the government] will have to pay dearly, which means taking on more debt.”

During the administration of President Susilo Bambang Yudhoyono in 2005-2014, the average economic growth averaged 5.8 percent per year. Then, during President Joko Widodo or Jokowi's era in 2015-2024, the average growth was estimated at only 4.2 percent per year. During the global pandemic, the economy continued to slow down in line with the worrying increase in debt. The slow post-pandemic recovery further exacerbates the debt trap cycle.

Yusuf also pointed out the impact of the rising debt burden on economic growth, inflation, and the financial system. “The higher the government debt stock, the lower the economic growth will be,” he stressed.

He urged the government to strictly implement fiscal discipline rules, such as ensuring that the budget deficit does not exceed 3 percent of GDP and preventing the central bank from monetizing government debt under any circumstances.

“It is very worrying that the President-elect's (Prabowo) plans are very permissive with debt. This could really jeopardize fiscal discipline and macroeconomic stability. We have seen this instability in the weakening rupiah exchange rate.”

ANNISA FEBIOLA

Editor's Choice: PKS Worried Welfare for Online Gambling Victims Will Be Used to Place More Bets

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