 Â Frequently Asked Question on Lending in Indonesia
Indonesia has managed its government debt burden well. The broadest measure of the impact of debt is the ratio of total government debt to total economic output or GDP. The ratio of public debt to GDP has fallen from 100 percent (1999) to 40.8 percent in 2006 and is expected to decline to 30-35 percent by 2009 (Figure 1). This is comparable with neighboring countries.
Figure 1: Easing Debt Burden
(Gov’t debt to GDP ratio, percent) | |
The burden of Indonesia’s debt on its budget is back to pre-crisis levels. Another measure of the impact of debt is the share of government resources that have to be paid to service debt, including principle and interest. Debt service as a share of total expenditures improved from as high as 38 percent in the pre-crisis level (1994-96) to 26 percent in recent years (2004-06). Debt service to expenditures is projected to be around 23 percent in 2007 (Figure 2).
Figure 2. Government Debt Services share to Total Expenditure,
in percent | |
Due to growth, fiscal performance and a strengthening currency, debt levels are now on par with regional competitors. As of end-2006, Indonesia’s government debt to GDP ratio stood at 40.8 percent. This level is comparable to regional competitors such as Thailand and Malaysia, and much better than the Philippines.
Figure 3: Indonesia’s debt is par with regional competitors
(government debt to GDP ratio in 2006, percent) | | | Source: World Bank Staff |
Figure 4: Public Investment back to Pre-Crisis Level
(development expenditures % GDP) | | | Source: World Bank Staff |
Total Government spending on development (namely, capital spending and social transfers) is estimated to be at, if not above, pre-crisis levels
Public investment as a share of GDP was above 6 percent before the Asian crisis. It fell to below 4 percent in 2000. Currently, spending on development has returned to pre-crisis levels. In 2006, public investment is estimated to have reached above 6 percent of GDP with the improvement in public financial management and decentralization reforms. About half of public investment comes from regions (sum of province and kabupaten/kota).
Figure 5: Public Debt Outstanding
(US$ Billion) | | | Source: World Bank Staff |
Domestic public debt makes up half of the national debt: While Indonesia continues external borrowing the bulk of its debt is now owed to domestic markets. As of December 2006, total outstanding debt owed by the central government was US$144 billion of which the domestic debt was US$76.8 billion (53 percent of total) and external debt was US$67.7 billion (47 percent). (Figure 5) Â
GOI debt to the World Bank is 6 percent of its total debt: As of today, the country’s total debt outstanding to the World Bank is US$8.9 billion (IBRD US$7.6 billion and concessional IDA at US$1.3 billion)
Figure 6: Government debt composition, 2006
(percent of total) | |
*1 This note is prepared by World Bank Office Jakarta. Further inquires should be addressed to Randy Salim (rsalim1@worldbank.org)
*2 For a household the analogous measure would be the household’s total borrowing to its total income in a year.
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