Analysis of the Influence of Public Debt on Financial Risk and Macroeconomic Balance in Indonesia

Abstract

Public debt has a strategic role in supporting the financing of economic development in Indonesia, particularly in the infrastructure, health and education sectors. However, imprudent debt management can lead to financial risks, such as high interest payment burden and dependence on foreign debt, which can threaten macroeconomic stability. This study aims to analyse the effect of public debt on financial risk and macroeconomic balance in Indonesia. The proposed hypothesis states that effective debt management can support economic growth, while sub-optimal management can increase fiscal and macroeconomic risks.  Using a descriptive-analytical approach and secondary data analysis from government reports as well as macroeconomic data, this study finds that public debt allocated to productive sectors, such as infrastructure, contributes positively to economic growth. However, dependence on foreign debt increases vulnerability to fluctuations in exchange rates and global interest rates. In addition, debt interest payments, which account for 15 per cent of state expenditure, limit the budget for other sectors, such as education and health. The research emphasises the need for a balance between productive investment and fiscal risk control. Policy reforms focusing on bureaucratic efficiency, financing diversification, and debt management transparency are needed to realise sustainable economic growth and macroeconomic stability.