State Debt and the Test of Public Trust
Without trust, even the best policies will lose their power.
Jakarta (ANTARA) - Fiscal policy is fundamentally the art of choosing within constraints. Every rupiah spent by the state carries consequences: who benefits today and who bears the burden in the future.
For a long time, many governments, both in advanced and developing countries, have been able to postpone these difficult choices by taking advantage of cheap debt. Indonesia has not been entirely immune to this tendency.
However, changes in the global landscape in recent years have marked the end of that era. As debt increases and borrowing costs soar, fiscal policy is no longer just about numbers, but about trust.
Before the COVID-19 pandemic, the trend of rising debt was already evident. Indonesia was relatively disciplined in keeping the debt-to-Gross Domestic Product (GDP) ratio below 30 percent until the mid-2010s. However, spending pressures, particularly for infrastructure and subsidies, gradually increased financing needs.
When the pandemic struck in 2020, the government faced an extraordinary situation: economic contraction, declining state revenues, and sharply rising spending needs for health and social protection. The budget deficit widened to more than 6 percent of GDP, and the debt ratio jumped to around 40 percent of GDP.
Such steps were unavoidable. Without aggressive fiscal expansion, Indonesia risked a deeper economic crisis. However, like many other countries, the long-term consequences are now beginning to be felt.
As the economy began to recover, the world did not return to its previous state. Global interest rates rose sharply in response to inflation, and debt servicing costs followed suit. Indonesia, which previously could issue Government Securities (SBN) with relatively low yields, now has to offer higher yields. In practice, this means that interest payments in the State Revenue and Expenditure Budget (APBN) continue to increase.
Data shows that Indonesia’s debt interest payments have now exceeded Rp500 trillion per year. This figure is equivalent to about 15-20 percent of total state spending, or nearly twice the national health budget. In other words, much of the fiscal space is absorbed not for direct public services, but to meet past obligations. This is a signal that cannot be ignored.
The problem becomes more complex because state spending needs continue to rise. Indonesia faces major demands to finance economic transformation, infrastructure development, energy transition, and strengthening the social safety net. At the same time, Indonesia’s tax revenue ratio remains around 10-11 percent of GDP, lower than many countries at a similar level of development. It is this imbalance between spending needs and revenue capacity that creates structural pressure on Indonesia’s fiscal position.
This is where the trade-offs become apparent. Society wants better public services in the form of quality education, affordable health services, and strong social protection, but is not always willing to bear the costs through higher taxes. The government is in a dilemma: raising taxes risks hindering growth and provoking political resistance, while maintaining spending without increased revenue will enlarge the debt.
In this context, Indonesia is no different from many other countries. However, what sets it apart is the relatively narrower fiscal space. Advanced countries may be able to sustain debt ratios above 100 percent of GDP because they have deep financial markets and global reserve currencies. Indonesia does not have that luxury. Fiscal stability is key to maintaining investor confidence and preventing market turbulence.
High debt also brings broader economic consequences. When the government absorbs large amounts of funds from financial markets, the cost of capital for the private sector can rise. This has the potential to hinder investment and economic growth. In addition, the room to respond to future crises becomes more limited. If a new shock occurs—whether a global crisis, natural disaster, or geopolitical turmoil—the government may not have the same flexibility as during the pandemic.
The Debt Issue