Economist: Fiscal credibility must be maintained to curb borrowing costs
Jakarta (ANTARA) - Economist Yusuf Rendy Manilet from the Center of Reform on Economics (CORE) believes the government must maintain fiscal credibility to curb borrowing costs and ensure the sustainability of State Budget (APBN) financing.
“The increase in the BI Rate and various developments in global financial markets can only ease pressure in the short term. Ultimately, the risk premium demanded by investors is heavily influenced by their confidence in Indonesia’s fiscal condition,” Yusuf said when contacted by ANTARA in Jakarta on Friday.
According to Yusuf, the government is facing a situation where investors are demanding higher yields to purchase Government Bonds (SUN). Interest in SUN auctions also tends to be weaker compared to previous periods, meaning funding costs could potentially rise.
Foreign investors, who recorded outflows in the first quarter, have begun re-entering Indonesia’s financial markets. However, most of these foreign funds are still concentrated in short-term instruments such as Bank Indonesia Rupiah Securities (SRBI) and Treasury Bills (SPN).
“This indicates that liquidity is still available, but the cost of funds is increasing and investor preferences are shifting to shorter tenors,” he added.
In facing this situation, Yusuf continued, the government needs to maintain an active and flexible financing strategy.
The government is deemed not to need to force fund absorption through auctions when demand is low and the yields demanded by investors are considered too expensive. Conversely, debt issuance can be optimised when market conditions are more conducive so that financing costs can be suppressed.
Diversification of financing sources is also considered important. Besides relying on conventional SUN issuance, the government can utilise retail SBN instruments to absorb domestic investor funds.
Foreign currency bond issuance also still has potential as an alternative because it continues to receive a positive response from global investors.
On the other hand, managing the debt maturity profile must be done carefully to avoid a concentration of payments in certain periods that could increase future financing risks.
“The availability of cash buffers as well as close coordination with Bank Indonesia are also necessary so that the government has room to choose the most efficient financing timing,” Yusuf added.
Nevertheless, Yusuf underscored that the most decisive factor in keeping financing costs under control is the credibility of fiscal policy.
Increases in the benchmark interest rate or changes in global market conditions only have a short-term influence. In the longer term, the size of the risk premium demanded by investors is heavily influenced by confidence in Indonesia’s fiscal health.
Concerns about a widening budget deficit, weak state revenue, or future fiscal prospects could push investors to demand higher yields.
Therefore, Yusuf opined that the most effective step to curb borrowing costs is not simply to increase debt issuance, but to maintain fiscal discipline, ensure state revenue targets are met, preserve investment grade status, and strengthen financial market governance and transparency.
“In this way, the government will have greater room to finance the APBN deficit sustainably even as global economic uncertainty persists,” he concluded.