Indonesia reassures investors as public debt rises to 40.46 per cent of GDP

Indonesia’s government has moved to reassure investors that rising public debt remains within manageable limits, even as nominal figures reach fresh highs and economists warn of tightening fiscal space.

Finance Minister Purbaya Yudhi Sadewa said total central government debt stood at Rp9,637.9 trillion (approximately US$568.6 billion, assuming an exchange rate of Rp16,950 per US dollar) as of 31 December 2025, equivalent to 40.46 per cent of Gross Domestic Product (GDP).

Although the absolute figure increased by around Rp229 trillion (around US$13.5 billion) compared with the previous quarter, he maintained that the ratio remains prudent by regional standards.

“By that standard, we are still safe,” Purbaya said on Thursday (19 February 2026), comparing Indonesia’s debt level with Malaysia’s 64 per cent of GDP, Thailand’s 63.5 per cent and Singapore’s 165–170 per cent.

The minister stressed that the budget deficit would remain below the statutory ceiling of 3 per cent of GDP. In 2025, the State Budget (APBN) deficit was recorded at Rp695.1 trillion (approximately US$41.0 billion), or 2.92 per cent of GDP.

“Our strategy is to maximise the existing deficit to ensure the economy turns around,” he said, arguing that fiscal expansion was necessary to revive growth after a period of economic slowdown and social unrest in mid-2025.

Most of the government’s debt—87.02 per cent, or Rp8,387.23 trillion (around US$494.8 billion)—derives from the issuance of government securities (Surat Berharga Negara, SBN). The remainder, Rp1,250.67 trillion (approximately US$73.8 billion), consists of loans. All components rose in the fourth quarter compared with the third.

Purbaya defended the borrowing as an urgent measure to stabilise the economy, warning that failure to act could have triggered a crisis reminiscent of the 1998 Asian financial turmoil.

External debt rises on public borrowing

At the same time, Indonesia’s external debt edged higher. Bank Indonesia (BI) reported that total external debt reached US$431.7 billion in the fourth quarter of 2025, equivalent to roughly Rp7,318.6 trillion at an exchange rate of Rp16,950 per US dollar. This marked a quarterly increase of US$4.1 billion.

The rise was driven mainly by government borrowing. Public external debt stood at US$214.3 billion in the fourth quarter, up from US$210.1 billion in the previous quarter, reflecting foreign inflows into international government bonds. Long-term liabilities accounted for nearly all government external debt.

By contrast, private sector external debt fell slightly to US$192.8 billion, largely due to reduced borrowing by non-financial corporations.

Overall, Indonesia’s external debt-to-GDP ratio stood at 29.9 per cent at the end of 2025, with long-term instruments comprising 85.7 per cent of total external debt. BI said the debt structure remains sound and pledged continued coordination with the government to monitor developments.

Refinancing risks and fiscal pressure

Despite official assurances, analysts warn that Indonesia faces mounting refinancing obligations.

According to Kompas, data show that debt maturities will peak during the 2025–2027 period, exceeding Rp800 trillion (approximately US$47.2 billion) in principal repayments alone. These figures exclude interest costs, which in the 2026 Draft State Budget are projected at Rp599.4 trillion (around US$35.4 billion).

Tauhid Ahmad, senior economist at the Institute for Development of Economics and Finance (Indef), cautioned that sustained fiscal expansion combined with weak revenue growth—averaging below 5 per cent annually over the past five years—could push Indonesia towards a “debt trap”.

He noted that the persistence of a primary deficit, where revenue is insufficient to cover non-interest expenditure, suggests the government is increasingly borrowing not only for development but also to service existing debt.

Similarly, Josua Pardede, Chief Economist at Bank Permata, said the concentration of maturities will raise gross financing requirements and interest costs, narrowing fiscal space for priority spending.

“In a highly volatile global environment, fiscal burdens will become increasingly sensitive to shifts in investor appetite and rising yields,” he said.

Market sensitivity and currency moves

Debt dynamics have also influenced market sentiment. Indonesia’s credit rating outlook has recently been downgraded by international agencies, affecting investor perceptions and potentially increasing future borrowing costs.

The rupiah has come under pressure. According to the Jakarta Interbank Spot Dollar Rate (Jisdor), the currency closed at Rp16,884 per US dollar on Wednesday, weakening by 0.95 per cent since the start of the year.

Analysts attribute the currency’s fragility to a combination of large refinancing needs, global geopolitical tensions, and expectations surrounding US Federal Reserve policy, which have strengthened the US dollar.

Civil society warnings

In a separate statement issued in October 2025, the International NGO Forum on Indonesian Development (INFID) described Indonesia’s fiscal position as approaching a “fragile zone”.

It highlighted the narrowing gap between nominal GDP growth and effective interest rates on debt, warning that even minor economic shocks could push the debt ratio above the psychologically significant 40 per cent threshold.

INFID also pointed to structural weaknesses, including a tax-to-GDP ratio of around 10 per cent—below the ASEAN average—and the growing share of the budget allocated to debt servicing. In 2025, more than Rp1,300 trillion (approximately US$76.7 billion), or over 36 per cent of total expenditure, was earmarked for principal and interest payments.

The organisation urged comprehensive tax reform, stronger governance and greater transparency in debt management to preserve long-term fiscal sustainability.