Indonesia may reduce next year’s bond sale target with cash from 2023

By Gayatri Suroyo and Stefanno Sulaiman

JAKARTA (Reuters) -Indonesia may cut back next year’s bond issuance target if it has carry-over cash from this year, assuming it continues to see strong tax revenues until the end of 2023, Finance Minister Sri Mulyani Indrawati said on Thursday.

Southeast Asia’s largest economy has gradually reduced its fiscal deficit annually since 2020, when it booked a deficit of 6.1% of gross domestic product (GDP) – its biggest deficit in decades – to finance its pandemic response.

Next year’s budget of $216 billion is designed with a deficit of 2.29% of GDP, roughly the same as this year’s fiscal gap outlook in proportion to Indonesia’s economic size.

However, the indicative bond sale to cover the deficit for 2024, amounting to 666.4 trillion rupiah ($43.7 billion) worth of notes – excluding short-term notes for cash management and buybacks – is about 84% larger than this year’s issuance target.

The government has slashed this year’s bond sale target as tax takes have been stronger than anticipated and it is using carry-over cash from 2022, a decision taken in anticipation of rising global interest rates.

Sri Mulyani in an interview with Reuters said the same strategy would be used next year, including by potentially accumulating cash this year to shrink 2024’s bond sale target in weekly auctions and boosting retail bond offerings to Indonesian citizens.

“The most important thing in the current situation when the cost of capital is high is we are going to be even more careful. We are signalling this by reducing our deficit and being careful with our financing,” Sri Mulyani said.

The government’s 2024 budget proposal assumes the benchmark 10-year bond yield to average at 6.7% next year, down from the official estimate of this year’s average of 6.8%.

The yield of the government’s 10-year rupiah bonds, which hit above 7% at the beginning of 2023, fell to 6.18% in July, its lowest since 2021. However, it has since risen to as much as 6.742% this week amid rising U.S. Treasury yields.

($1 = 15,240.0000 rupiah)

(Editing by Martin Petty)