Over the past few years, global national debt has risen tremendously as governments raced to introduce stimulus packages to fix their economies. This has been true for the most robust economies out there like the United States, to European economies,

and developing economies seen in Southeast Asia, to Africa, and so on. Out of the many economies that have been engulfed in national debt, however, there have been a couple that stood out. One of these is Indonesia, which surprisingly emerged to have low debt.

Here’s a graph on Indonesia’s gross debt position as a percentage of their GDP, data from the International Monetary Fund (IMF). What this data is basically about is Indonesia’s national debt to the size of its economy. The size of Indonesia’s economy is based on the

gross domestic product (GDP), and the size of Indonesia’s debt is based on the IMF’s gross debt, which includes government borrowing from domestic and international sources. As you can see from the graph right here, as of the latest data available for 2024,

the gross debt to GDP of Indonesia stands at just 40.51%. That means Indonesia's total debt is only about 40.51% of its economic output. But is this low? Well, to understand that, let’s compare Indonesia’s debt to its neighboring countries in

Southeast Asia. Here, in the updated graph, you can see that Indonesia’s debt to GDP is lower than most economies in the region. The Philippines has a debt to GDP of 57.6%, whereas Thailand's is at 65%.

and Malaysia at 68%. The only major economy in Southeast Asia that has a lower debt-to-GDP ratio than Indonesia is Vietnam. Nevertheless, this showcases that Indonesia’s debt-to-GDP ratio is actually very low. As a matter of fact, let’s even compare Indonesia to other big economies out there. Let’s add India,

China, and the United States in the graph right here. As you can see, Indonesia’s debt-to-GDP ratio is indeed very low. But we should not jump to conclusions yet in claiming that Indonesia is an outperformer in this case, and others as underperformers. We’ll

talk more about that later. For now, let’s talk about why Indonesia’s debt is so low. The reason behind Indonesia’s low debt-to-GDP ratio is simple, and it lies in government spending. Government spending is the crux of the matter. It is what drives a country’s national debt

to increase and decrease. National debt, after all, is basically a country’s government debt. In Indonesia’s case, the debt can be incurred or paid off under Joko Widodo and his administration. This can be best understood if we put the graph on Indonesia’s government spending for 2023. Here,

you can see the government spending of Indonesia. It is what is normally referred to as the national budget. It is how a government spends and generates money. A government usually generates money through taxes, which you can already see from the

graph right here. A substantial portion of the revenues would directly come from tax revenues, and these are divided by two categories: taxes and customs and excise. Taxes generally compose things like corporate taxes, income taxes, value-added taxes, and so on. Customs and excise,

On the other hand, is about import and export duties, as well as taxes on specific goods like tobacco, alcohol, and luxury items.
Then, there’s also the non-tax revenue, which in Indonesia’s case, can be earnings from state-owned enterprises,

natural resource extraction (like oil, gas, and minerals), and other government-managed assets. As you can see, for 2023, the total revenue stands at 2,774 trillion Indonesian Rupiah, which is approximately $180 billion US dollars, based on the average exchange rate for 2023.

This money would then be used to fund various initiatives in Indonesia. You can see that in the expenditure line, where Line Ministries expenditure would take up the most, followed by non-Line Ministries spending. There’s also the transfer to the region, which is allocated

to support local governments in Indonesia. In total, the expenditure is 3,121 trillion Rupiah or approximately $202 billion, based on the average exchange rate for 2023. Now, here’s where things become important. The revenue of Indonesia is just at $180 billion,

while the expenditure is at over $202 billion. There’s a shortfall of about $22 billion. That is where government borrowings come in. This is a key part as to why Indonesia’s debt increases, because the government spends more money than they earn. It is most commonly known as a deficit.

A deficit is the opposite of a surplus, and it happens when governments spend more than they make. For 2023, the deficit stands at 1.65% of Indonesia’s GDP. Now, this is an important indicator, as it will help us compare Indonesia’s deficit to another country.

We must compare Indonesia, because that is where Indonesia stands out. It is the single reason why Indonesia’s debt is much lower than most countries out there; it lies in their low deficit spending. Here’s a graph, with data that we collected from the Ministry of Finance of Indonesia

on the fiscal position as a percentage of GDP of Indonesia. This graph takes the deficit earlier, but includes previous years. As you can see, in the past few years, Indonesia’s deficit as a percentage of GDP hasn’t been really doing well. But before you come to a conclusion and say that

the Indonesian government has been spending too much money and not generating enough, we should first compare Indonesia's government spending to other economies. Here’s an updated graph comparing Indonesia to other economies. As you can see, Indonesia, compared to its regional neighbors like Thailand, Malaysia, and other big economies out there,

Indonesia’s fiscal position is actually doing much, much better. The latest year available for 2023 shows a deficit of just 1.65%, yet countries like India have over 8.8% in deficit, with the closest to Indonesia being Thailand at 2.6%. This is a major reason why Indonesia’s debt to GDP

is low, and that is because they have managed their government budget better as compared to these other economies. They don’t overspend is the simplistic view of it. However, what might be the question that most of you want to know is that, even though Indonesia’s fiscal position is better,

shouldn’t it incur debt as well? After all, it is spending more money than they earn, with the latest year for 2023 that we mentioned earlier showing a deficit of over $22 billion. So, why is Indonesia's debt to GDP not going up? That’s simply because we are comparing

Indonesia’s debt to GDP, which in recent years has been growing fast. Here’s a separate graph on Indonesia’s GDP growth rate, data that we collected from the World Bank. As you can see, Indonesia’s GDP growth from 2013 to the latest year in 2023, has mostly been going strong,

and it was only in 2020 that Indonesia’s economic growth contracted. Yet, even though it suffered a contraction of 2.1%, it wasn’t really as bad as other neighboring countries. Take a look at this updated graph with the Philippines,

Malaysia, and Thailand. As you can see, Indonesia’s GDP or economic output didn’t suffer as badly as these economies, and its GDP growth has also been stable after the COVID-19 pandemic. So, what this basically implies is that Indonesia’s fiscal balance,

or borrowings, has been much less than comparative countries, and it is also doing far better than most, at the very least, in economic output growth or GDP growth. However, it is important to know that it is not just economic growth rate and the

rate of borrowing. There are other factors included here, like the structure of the debt, the efficiency of government spending, and external factors such as currency stability and inflation. But for simplicity’s sake, and the fact that borrowings

and GDP growth are among the biggest factors, we’ll leave it here for now. So, knowing that, is Indonesia’s debt low because of good government spending? Is Indonesia’s government being efficient in its spending? And are other governments reckless

since they are spending more than they can earn?
Well, one can argue that Indonesia’s government is indeed spending well, but there’s a hidden aspect about Indonesia’s debt, and that is because of Indonesia’s big state-owned enterprise structure.

Here’s a graph with data that we collected from Statistics Indonesia about their state-owned enterprise revenue and net profit for the years 2021 and 2022. As you can see, in both years, Indonesia’s state-owned enterprises have recorded net profit,

with the year 2022 at over 351 trillion Rupiah, which is about $23.4 billion. Now, the reason why this is so important is because a portion of this money actually goes to the budget revenues that we saw earlier. This is an important reason as to why Indonesia

does not have to borrow heavily, as they have other funds that contribute to their budget. Secondly, these state-owned enterprises also take on the responsibility of financing and executing major infrastructure projects, which reduces the burden on the government’s budget. For instance,

Indonesia’s project, the Jakarta-Bandung High-Speed Rail, is being developed through a partnership between the Indonesian government and state-owned enterprises like PT Kereta Api Indonesia (KAI). KAI has partly been using its own funds for the new high

speed railway. As a matter of fact, instead of the Indonesian government borrowing money, KAI has reportedly been the one who borrowed money from China, which according to a 2024 news article said that KAI has borrowed $450 million in loans from a Chinese state-owned

bank. What this basically tells us is that some of the debt that could have gone into the balance of the Indonesian government was, instead, given to their own state-owned enterprises. Hence, while one might see that Indonesia's debt is low, it's just

in the form of its state-owned enterprises like KAI. But is this good or bad? Well, there are pros and cons that go into it. For one, of course, we get to see lower debt on the side of the Indonesian government. But the other is the fact that if these

state-owned enterprises were to ever be in trouble, then the government would step up. For instance, during the COVID-19 pandemic, the Indonesian government had reportedly bailed out several state-owned enterprises in the forms of cash, working capital investments, and so on. But anyway, do let

us know what you think. Thanks for watching!

Why Indonesia's National Debt is So Low

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