Indonesia will dip further into Islamic sovereign bond sales this year to fund infrastructure projects, relying less on global investors and expediting a deepening of its financial markets.
The finance ministry expects to use 28.43tn rupiah ($1.96bn) of 2019 sukuk proceeds to build 619 projects encompassing roads, ports, airports, railways, and marriage halls, director general of Budget Financing and Risk Management Luky Alfirman said last month.
Last year’s sukuk projects are expected to reach 22.53tn rupiah.
“We want to bring alternatives to state budget financing and deepen the Shariah financial market,” Alfirman told a forum in Jakarta on December 21.
The Islamic bond market in the world’s largest Muslim-majority nation is lagging behind neighbouring Malaysia. With Muslims making up almost 90% of the population, the size of Shariah-compliant bonds will account for about 25% to 30% of the gross borrowing set for this year.
The total outstanding of tradable government bonds amounted to 2,374.5tn rupiah as of December 11, 16% of it in Islamic securities. The slice of banking assets complying with the ban on interest hovered at about 5% for the past three years.
“Our sukuk market is smaller compared to the conventional market,” Alfirman said. “Hence, companies issue more conventional bonds rather than sukuk.”
Southeast Asia’s largest economy relies heavily on offshore funds to finance its budget deficit, with foreign investors owning almost 40% of its bonds. The government sees the fiscal deficit at 1.9% of gross domestic product last year.
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