$433 Billion Foreign Debt: Sustainable Growth or Looming Risk?

Indonesia’s external debt climbed to $433.3 billion in Q2 2025, revealing diverging trends between public and private sector borrowing. While government debt grew 10% year-on-year—fueled by infrastructure financing—private sector debt contracted for the second consecutive quarter. This split highlights Indonesia’s delicate balancing act: leveraging foreign capital for development while maintaining debt sustainability amid global financial volatility.*

Key Facts & Background

Debt Breakdown (Q2 2025)

• Total External Debt: $433.3B (Rp7,001.8T)

  • Government: $210.1B (+10% YoY)

  • Private Sector: $194.9B (-0.7% YoY)

• Debt-to-GDP Ratio: 30.5% (down from 30.7% in Q1)

Sectoral Allocation

• Government Debt Use:

  • Healthcare & Social Services (22.3%)

  • Public Administration & Defense (19%)

  • Education (16.4%)

  • Infrastructure (Construction 11.9%, Transport 8.6%)

• Private Debt Concentration:

  • Manufacturing (largest share)

  • Financial Services & Insurance (+2.3% YoY growth)

  • Energy (Electricity/Gas, Mining)

Structural Safeguards

• 85% long-term debt maturity

• 76.7% of private debt in long-term instruments

• BI-Govt coordination to monitor risks

Strategic Implications

The Infrastructure Financing Dilemma

The 10% YoY surge in government debt reflects Indonesia’s reliance on foreign capital to fund critical infrastructure and social programs. Notably, over 20% of borrowed funds support healthcare and education—sectors crucial for long-term productivity but with delayed ROI. This strategy carries both opportunities and risks:

• Upside: Productive debt (e.g., toll roads, ports) can boost GDP growth beyond debt servicing costs.

• Risk: Global rate hikes could increase refinancing costs for the $210B owed. With 99.9% of government debt long-term, Indonesia has breathing room but must avoid “rollover risk” in future rate cycles.

The private sector’s debt contraction (-0.7% YoY) signals caution among corporations, possibly due to:

1. Higher global borrowing costs

2. Focus on deleveraging

3. Reduced appetite for USD-denominated loans

Sustainability vs. Development Tradeoffs

Indonesia’s 30.5% debt-to-GDP ratio remains below the 60% threshold many economists consider risky for emerging markets. However, three hidden vulnerabilities warrant scrutiny:

1. Currency Risk: 85% long-term debt provides stability, but rupiah depreciation could still inflate repayment burdens.

2. Sectoral Imbalances: Heavy manufacturing/energy exposure in private debt (~80%) ties repayment capacity to commodity cycles.

3. Climate Financing Gap: Only 3-5% of government debt funds green infrastructure—a missed opportunity given Indonesia’s COP26 commitments.