Public Debt Sustainability in Indonesia after Financial Crisis and During COVID-19 Pandemic

Abstract

The Developing countries are particularly vulnerable to shocks, such as the global financial crisis and the COVID-19 pandemic. The economic crisis increased external public debt to stabilize the economy and improve people's welfare. High external debt puts the debt in an unsustainable condition. This study aims to measure the debt sustainability of external public debt in Indonesia from 2008-2020. We used the Threshold Value of The Debt Sustainability Framework for Low-Income Countries (LIC-DSF) and the Solvency Rate of External Debt (SRED) as a better combination for measuring debt sustainability in Indonesia. The results showed external public debt was at a low-risk threshold after the global financial crisis. However, the impact of COVID-19 has caused the ratio of external public debt interest payment to tax revenue to be within a high-risk threshold value. The SRED value shows a minus number from 2012-2020 caused by the worsening current account balance and net capital account values. The analysis of debt sustainability may be able to encourage a prudent and sustainable the Indonesian budget management policy.