The government will be “extra careful” in issuing bonds offshore to avoid locking in a high financing burden, said Luky Alfirman, the finance ministry’s director-general of financing and risk management.
“When we say we are being opportunistic, flexible and prudent, it’s not just jargon. It’s exactly what we’re doing,” he said in an interview.
The government will wait for market volatility to subside and the rise in US Treasury yields to slow before tapping global investors, he added.
Indonesia’s restraint could signal caution to other emerging markets and worsen the drought in debt sales as its issuance early in the year usually sets a benchmark for corporate borrowers.
Sales of bonds denominated in dollars, euros or yen from Asia ex-Japan issuers stand at about US$36 billion so far this year as market volatility deters borrowers, the slowest start since 2017.
Ample cash reserves in Southeast Asia’s largest economy, as well as the support of the central bank’s continued bond-buying, means Indonesia has leeway to delay international debt sales.
As economic growth recovers from the impact of the pandemic, the government is under less pressure to ramp up state spending.
Tax hikes are also set to bolster state revenue this year and mean Indonesia may need to issue less debt in 2022 than in the previous year.
Overseas debt
With higher income, the country could even cut the proportion of foreign-denominated bonds from 18%-20% of its 1,417.4 trillion rupiah (US$99 billion) gross financing plan this year, Alfirman said.
He declined to specify what it might be lowered to. “If markets are conducive and the price is good, we may increase it, otherwise we may reduce it,” he added.
The scope to reduce issuance gives the government options when faced with rising borrowing costs. Ten-year US Treasury yields have soared about 45 basis points this year, and the yield on Indonesia’s 10-year government bonds has risen 15 basis points to 6.53% so far in 2022.
Managing financing costs is key to bringing down the country’s debt-to-GDP ratio back to 30% over the next few years, from 41% last year, said Alfirman.