Indonesia Faces High Debt Interest Burden Despite Lower Borrowing Costs

World Bank Highlights Fiscal Challenges

The World Bank has raised concerns about Indonesia's high debt interest payment ratio, which stood at 20.5% of government revenue as of October 2025 ¹

. This persists despite favorable financing conditions and successful efforts to reduce borrowing costs. The World Bank's report, titled 'Digital Foundations for Growth' (December 2025 edition), notes that while the government has maintained fiscal prudence, the high interest burden constrains budget flexibility ³

Source 3

https://nasional.kontan.co.id/news/bank-dunia-soroti-rasio-bunga-utang-ri-tinggi-meski-biaya-pinjaman-rendah

.

Economic Implications

Economists from different institutions have expressed concern over the implications of this high ratio. Wijayanto Samirin from Universitas Paramadina described it as a 'yellow light' for fiscal policy, indicating a high-risk scenario ¹

. Yusuf Rendy Manilet from Center of Reform on Economic (CORE) emphasized that the most significant impact is the narrowing of the government's spending space, limiting its ability to allocate funds to development priorities ²

Source 2

https://nasional.kontan.co.id/news/rasio-bunga-utang-masih-tinggi-ruang-belanja-pemerintah-kian-menyempit

.

Fiscal Deficit Widening

The fiscal deficit has shown a concerning trend, increasing from 1.4% of GDP in October 2024 to 2.0% in October 2025. This widening deficit reflects challenges in government revenue collection, despite the government's targeted fiscal support and commitment to prudence ³

. The World Bank acknowledges these efforts but points out that their effectiveness is hampered by declining state revenues.