Prabowo Subianto to Increase Indonesia's Debt-to-GDP Ratio to 50% with a Focus on Boosting Tax Revenues
In a recent interview with the Financial Times, Indonesian President-elect Prabowo Subianto's adviser, Hashim Djojohadikusumo, revealed that the incoming administration plans to allow the nation's debt-to-GDP ratio to rise to 50%. This decision is contingent on the government's ability to increase tax revenues significantly.
Despite concerns about the potential impact on Indonesia's investment-grade rating, Hashim emphasized the importance of raising revenue alongside the debt level. The administration aims to achieve this through various means, including taxes, excise taxes, royalties from mining, and import duties.
While there were previous reports suggesting a more drastic increase in debt-to-GDP levels, Prabowo's team clarified that they would continue to adhere to existing fiscal rules. These rules include capping the government's budget deficit at 3% of GDP and limiting the debt-to-GDP ratio to 60%.
The market's reaction to Prabowo's borrowing plans has been evident, with bond prices and the rupiah experiencing downward pressure in recent weeks. However, the incoming president has also pledged to raise public debt levels while increasing the tax-to-GDP ratio from its current level of around 10% to 16%.
In response to reports about exploring the removal of fiscal deficit and debt-to-GDP ratio ceilings, Prabowo's fiscal adviser denied any knowledge of such discussions. As Indonesia prepares for a new administration in October, the focus remains on balancing economic growth with prudent fiscal management.
In conclusion, Prabowo Subianto's decision to increase Indonesia's debt-to-GDP ratio to 50% could have a significant impact on the country's financial stability and investment climate. By prioritizing revenue generation and adhering to existing fiscal rules, the administration aims to navigate the challenges of economic growth while maintaining its investment-grade rating. Investors and citizens alike should closely monitor these developments to understand how they may affect their finances and the broader economy.