Indonesia: Central bank purchases 1.6 bln USD worth of G-bonds hinh anh 1The central bank of Indonesia (BI) (Photo: Jakarta Post)

Jakarta (VNA) – Indonesia’s central bank (BI) has bought 1.6 billion USD worth of government bonds in the primary market, underlining its commitment to remain active in it as the country faces a burgeoning state budget deficit due to the rising cost of COVID-19 mitigation efforts.

Indonesian Finance Minister Sri Mulyani Indrawati on May 18 said the deficit might reach up to 1,028.5 trillion rupiah (69 billion USD) this year, or 6.27 percent of the country's GDP – the biggest in at least three decades.

Tax revenue is also expected to shrink as the government cuts corporate income taxes. Meanwhile, the stimulus package to help the economy cope with a prolonged pandemic will increase state spending even more.

To counter the expanding deficit, BI Governor Perry Warjiyo said the central bank will buy more government bonds to help the government meet its fiscal financing obligations in the primary market.

BI had signed an agreement with the Finance Ministry to buy the government bonds and until May 14 it had already bought 22.8 trillion rupiah worth of the bonds from the primary market.

The central bank is buying the bonds straight from the government through non-competitive bidding. BI is allowed to buy up to 25 percent of the issuance target, according to the BI governor.

Perry has also encouraged banks in need of more liquidity to trade their bond holdings to the central bank in a repurchase agreement (repo).

According to BI's data, Indonesian banks' total bond holdings were valued at 886 trillion rupiah as of May 14.

This facility is part of the government's National Economic Recovery program, which also promotes credit restructuring for small and medium enterprises (SMEs)./.