MacroInsight: Details on The Burden Sharing Scheme
Wednesday, July 08, 2020       10:07 WIB

 MacroInsight  /   Click here for full PDF version  
Author(s): Luthfi Ridho, Desty Fauziah
  • BI and MoF have come to an agreement on the burden sharing scheme for state budget 2020. BI will bear 54.8% of total cost of financing.
  • The special rate bond will be a one-off exception. Both parties emphasize the importance of guarding the market mechanism.
  • The agreed scheme shall bring positive sentiment to economic activity without creating unnecessary disturbance in both inflation and currency.

Newly agreed financing scheme
The newly agreed financing scheme for the increased fiscal deficit to 6.34% of GDP will consist of two major categories, which are: (i) public goods and (ii) non-public goods totalling at Rp903.46tr. The 0% interest bonds will be designated for the public goods spending financing (Rp397tr), while in the non-public goods (Rp505tr) the financing rate (for MoF side) will be either BI policy rate minus 1% (3.25% - burden sharing) or the market rate (for Rp329tr other spending which shall be fully borne by the government). Without the special rate bonds, the cost of fund for fighting the pandemic is roughly at Rp66.5tr, while with the agreed scheme the cost of fund will be at roughly Rp30.6tr or around 46% lower.
Exit policy and the importance of guarding the market mechanism
Bank Indonesia (BI) and Ministry of Finance (MoF) were emphasising on the importance of guarding the global community trust on Indonesia'. Thus, the issuance of the so-called special rate bond will only happen this year and it will be a one time-off issuance. On the exit policy, the official medium-term state budget plan already addresses the gradual decline of fiscal deficit starting from FY 2021 at 3.21% - 4.17% of GDP, until FY 2024 at below 3% of GDP.
Positive impact to economic activity
The share of financing cost between BI and MoF is constructive and will have positive impact to the economic activity. In terms of money supply, the additional Rp903.45tr is equal to 13.8% of M2, while the Rp397.6tr public goods (the part that is fully borne by BI) spending is equal to 6.1% of M2 which shall be manageable to both inflation and exchange rate. In terms of debt servicing, the burden sharing will save MoF interest expense allocation to roughly 17% of total spending from around 20% without the sharing. With the assumption of 90% realization of the plan, our internal simulation suggests an addition of 0.5% to the yearly inflation number and a depreciation of Rp143 - Rp179 per US$, ceteris paribus.


Sumber : IPS

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