20171219-大华银行-Macro_Note__Indonesia__External_Debt_Looks_Manageable_5页_549kb

Indonesia: External Debt Looks Manageable

Core Content

Indonesia's external debt, defined as liabilities owed to non-residents by residents, is a critical indicator for assessing potential external vulnerabilities. As of the end of October 2017, Indonesia's total external debt reached USD341.5bn, with a 5% year-over-year (yoy) increase. This growth was primarily driven by both the private sector and the public sector, with the former increasing by 1.3% yoy (USD168.3bn) and the latter by 8.4% yoy (USD173.2bn).

The composition of Indonesia's external debt, based on original maturity, remains largely unchanged, with long-term external debt still dominating at 86.3% of the total. Long-term debt grew by 3.9% yoy, while short-term external debt saw a higher increase of 10.6% yoy. The trend of external debt growth has been slowing since peaking around 20% in the latter half of 2010, averaging below 5% in 2017.

Key Ratios

• External Debt to GDP Ratio: Slightly increased to 34.5 in end-Q3 2017 from 34.4 in end-Q2 2017, but has been trending downward since reaching a peak of 37.3 in end-Q2 2016.
• Short-Term Debt to Total Debt Ratio: Rose to 13.9% in Q3 2017 from 13.6% previously, increasing steadily from 11.8% in early 2016.
• Short-Term Debt to FX Reserves Ratio: Declined slightly to 36.9% in Q3 2017 from 37.1% in the previous quarter, due to a steady increase in FX reserves.

Sectoral Breakdown

The majority of Indonesia's external debt is concentrated in the following sectors:

• Financial Sector: Dominated by public sector external debt, accounting for 72.2% of the total financial sector external debt.
• Manufacturing Sector: 98.5% of its external debt is from the private sector.
• Electricity, Gas & Water Supply Sector: 87.0% of its external debt is from the private sector.
• Mining Sector: 98.2% of its external debt is from the private sector.

These four sectors accounted for 77.4% of Indonesia's total external debt in the 2016–2017 period. The electricity sector has shown a slight increase in the growth rate of its external debt, though it remains relatively low compared to previous years. This sector is particularly exposed to foreign currency risks due to its revenue being largely in local currency, while its debts are mostly in foreign currencies.

Risk Assessment

Despite the overall growth in external debt, the balance of risks appears manageable. Indonesia has a stronger external position and a steady structure with a dominating share of long-term debt over short-term debt. However, there are key risks that require closer monitoring:

• Rollover Risks: The increasing share of short-term debt raises concerns about the ability to refinance obligations in the future.
• Interest Rate Risk: With the potential for a global interest rate up-cycle, Indonesia may face higher borrowing costs.
• Currency Mismatch Risks: The exposure of certain sectors (especially electricity) to foreign currency debts while generating local currency revenue could pose challenges in repayment.

Conclusion

The trend of Indonesia's external debt is relatively manageable, especially in the context of potential capital reversal risks from further monetary policy normalization in advanced economies. While the private sector has significantly deleveraged, this has come at the cost of slower economic growth. The public sector has also seen a moderate increase in external debt, but remains within a manageable range. Overall, the external debt profile is stable, but continued monitoring of rollover, interest rate, and currency mismatch risks is essential to maintain financial stability.

Figures Mentioned

• Total External Debt: USD341.5bn as of end of October 2017.
• External Debt-to-GDP Ratio: 34.5 in end-Q3 2017.
• Short-Term-to-Total External Debt Ratio: 13.9% in Q3 2017.
• Short-Term External Debt-to-FX Reserves Ratio: 36.9% in Q3 2017.
• Sectoral Share of External Debt: Financial (72.2%), Manufacturing (98.5%), Electricity (87.0%), Mining (98.2%).
• Growth of External Debt (6-month moving average): Slowing since 2010, averaging below 5% in 2017.
• Growth of Public and Private External Debt (6-month moving average): Highlighting the shift from public to private sector debt.

Disclaimer

This analysis is based on public information and is subject to change. UOB Group does not guarantee the accuracy or completeness of the data and may have positions in, or effect transactions in, the currencies and financial products mentioned. Readers are advised to conduct their own due diligence before making any investment or transaction decisions.