Infrastructure finally coming in Indonesia, with SOE financing a key

March 12, 2018

JAKARTA - Indonesia’s pent-up demand for infrastructure is finally getting the support it needs, says Natixis in a new report card on the Indonesian economy. The report analyses Indonesia’s infrastructure demand and supply from a bottom-up perspective to examine the macroeconomic implications of the archipelagos’ building push, compiling a comprehensive list of the Government’s priority infrastructure projects and their financing needs.

“Since coming to power in 2014, President Jokowi has been spear-heading efforts to construct roads, railways, seaports, and refineries to make up for the existing short-fall, and the anticipated increase of 88 million urbanites by the year 2050,” Natixis says.


 There three key takeaways from its analysis:


Indonesia’s infrastructure supply is coming with 245 on-going and planned national projects to build roads, railways, seaports and refineries amount to 31% of GDP or USD304bn.


The Government expects the State budget to fund only 12%, State-owned enterprises (SOEs) financing 30%, and the private sector expected to fund about 58% of the total costs. There are 37 projects that the government is prioritising, costing 18% of GDP. 


With a Government that has a low revenue ratio and is fiscally conservative, so far, funding has come from foreign governments such as Japan and China, SOEs as well as the private sector.


To support the building of infrastructure, Indonesian SOEs are increasing their pace of borrowing more than Indonesia’s top 20 public firms, causing their liability to equity ratios to rise, although SOEs’ leverage is still lower than global peers by a long shot. SOEs’ ability to repay debt is also deteriorating more than peers in the same sector, and worse than the global average.


Although high leverage is not necessarily uncharacteristic of the infrastructure sector, the marked increase of leverage and worsening debt repayment ability shows that SOEs are emerging one of the key financers in Indonesia’s infrastructure push.


And should Indonesia’s investment in roads, bridges, refineries and railways improve productivity and reduce bottlenecks, then Indonesia may be able to reap its demographic dividend and grow beyond 7%, higher than its 5% growth rates since 2013.