WB: Indonesia may lose market confidence due to debts

Spraying disinfectant to prevent the spread of COVID-19 in Jakarta (Photo: AFP/VNA)

Jakarta (VNA) - The World Bank (WB) has called on the Indonesian government to formulate a sound fiscal strategy to “flatten the debt curve” and maintain financial market confidence as debt mounts amid the COVID-19 pandemic.

Indonesia’s debt-to-gross domestic product (GDP) ratio would rise to 37 percent this year from 29.8 percent last year, driven by an increase in borrowings to cover for the widening budget deficit and to cope with the economic slowdown and rupiah exchange rate depreciation, according to WB senior economist for Indonesia Ralph van Doorn.

The Indonesian government should provide assurances over its fiscal strategy to raise revenues back to at least the 2018 level to flatten the debt curve, he said, adding the country risked losing market confidence over its mounting debts.

He also suggested Indonesia show a credible path for the economy to unwind exceptional measures taken by the government to battle the pandemic.

Indonesia’s budget deficit is expected to increase to 6.27 percent of its GDP this year, more than double the initial ceiling of 3 percent,

The WB has projected zero percent growth for the Indonesian economy under the baseline scenario. However, the economy may contract 3.5 percent under the worst-case scenario./.