Indonesia central bank ready to finance more fiscal deficit to fight COVID-19

The logo of Indonesia's central bank, Bank Indonesia, is seen on a window in the bank's lobby in Jakarta, Indonesia

Indonesia’s central bank is ready to further finance the government’s budget deficit and “share the burden” of fighting the coronavirus outbreak, the bank’s chief told an online seminar on Saturday.

Bank Indonesia (BI) Governor Perry Warjiyo said he and Finance Minister Sri Mulyani Indrawati had agreed to accelerate budget deficit financing and for the central bank “to ease the government’s burden” of responding to the outbreak.

“The point is BI is ready to provide financing for the state budget and share the burden,” Warjiyo told a seminar hosted by the IPB School of Business.

The central bank and the finance ministry are in their final stage of agreement for the deficit financing scheme and they would work with parliament’s finance commission and the Audit Board of Indonesia to ensure accountability, Warjiyo said.

Lawmakers last week pressured BI to step up its bond buying and purchase zero coupon government debt in a bid to help combat the economic fallout of the coronavirus pandemic, even after the central bank made its third interest rate cut this year.

Warjiyo reiterated in the seminar that BI has scope to trim its main policy rate further.

BI has so far in 2020 bought 40 trillion rupiah ($2.83 billion) of government bonds directly in auctions, as a non-competitive bidder, with pricing determined by the market. It has also purchased 166.2 trillion rupiah of bonds in the secondary market.

In total it has injected 614.8 trillion rupiah of liquidity into the financial system, including via bond buying operations, the governor said.

The fiscal deficit this year is expected to be 6.3% of GDP, up from an initial plan of 1.8%, with the government forecasting a 10% drop in revenue and allocating nearly $50 billion for the COVID-19 budget.

Indonesia recorded a total of 51,427 coronavirus cases as of Friday, with 2,683 deaths.

Was it worth reading? Let us know.