Indonesia to tap global markets more to finance 2021 deficit

[JAKARTA] Indonesia's central bank governor said on Tuesday the government would increase sales of bonds in global markets in 2021 to fund its fiscal deficit as it expects less volatility than in 2020.

Bank Indonesia (BI) Governor Perry Warjiyo made the remarks at a webinar hosted by the Institute of International Finance, when asked if the central bank and the government see a risk of a large bond market intervention next year.

"The (finance) minister will be going in more on the global market to finance the budget. She will increase the allocation for global issuance," Mr Warjiyo said.

In response to the fallout from the coronavirus pandemic, BI has bought over US$36 billion worth of rupiah-denominated government bonds in a bid to stimulate lending and help President Joko Widodo fund a ballooning fiscal deficit.

BI has also cut interest rates five times this year, by a cumulative 125 basis points.

The government is expecting a fiscal deficit of 6.34 per cent of GDP in 2020, the widest in decades, while the deficit forecast for 2021 is 5.7 per cent.

Next year, BI will remain a standby buyer in local currency bond auctions to help the government navigate potential market volatility, Mr Warjiyo said. But he said he was not expecting a large intervention.

The governor said that, even though at the height of the coronavirus pandemic BI had to buy 20-25 per cent of Indonesia's bonds sold in auctions, it bought less than 5 per cent in most other auctions.

BI expects Southeast Asia's largest economy to post 5 per cent economic growth next year, bouncing back from "slightly negative" growth in 2020, Mr Warjiyo said.

He said the government's new "Job Creation" law, intended to bring in more foreign direct investment, would underpin the recovery.

REUTERS