Indonesian government’s primary balance and debt

Abstract

This study aims to determine the Indonesian fiscal sustainability condition by analyzing the impact of government debt on primary balance for the 1980-2018 period. Accordingly, we analyze the research data by using the Autoregressive Distributed Lag (ARDL) method. The results show that government debt has a significant and positive effect on primary balance, likely because the government intends to stimulate the economy and boost tax revenues by keeping debt interest rates low. Therefore, based on Bohn’s condition, Indonesia exhibits sustainable fiscal policies. However, in the short run, government debt negatively affects primary balance due to several factors, such as suboptimal tax efforts and revenue growth, unproductive use of debts, and relatively low capital expenditures. In sum, our research results recommend that the Indonesian government considers various policies that likely offset increased debts, such as intensifying and extending tax efforts to increase tax revenues and increase government spending in various productive sectors.

An Islamic Perspectives, the Current State of Indonesia in the Globalization Era

“…Like any other economic system, the purpose of the Islamic economic system is to achieve efficiency and equity in resource allocation and distribution 23 . According to Islam, there are three major concepts that govern the Islamic economic system: Tawhid, this idea depicts Allah SWT as the universe's solitary master and proprietor; Khilafah, which signifies that human are the caliphs or representatives of Allah on this earth by being given a set of spiritual and mental potential as well as a complete set of material resources with which to live in order to carry out his life's mission; 'Adalah, is an essential component of sharia's goals (maqasid al-Syariah).…”

“…Journal of EconomicPerspectives, 11(4). https://doi.org/10.1257/jep.11.4 23. which have quotations included in this paper.…”