Do Public Debt and Debt Service Support or Constrain Indonesia’s Agricultural Sector?

Muhammad Azizan, Dwi Rachmina, Novindra Novindra

Abstract


Numerous studies have been conducted that concentrate on enhancing the efficacy of the agricultural sector, highlighting the significance of technical factors as well as the implications of climate change. To this point, there exists a deficiency of research exploring the impact of fiscal policy on the agricultural sector in Indonesia. This study provides novel empirical evidence on how debt and its associated risks influence the agricultural sector. Annual macroeconomic data from 1990 to 2023 were used to examine the relationship between debt, debt service, foreign direct investment, fertilizer consumption, and land area to the GDP of the agricultural sector in Indonesia. The examination was conducted employing the Vector Error Correction Model (VECM) methodology to discern both short-term and long-term associations among the variables. The results show that in the long run, public debt is positively related to the share of GDP in the agricultural sector, while the cost of debt service is negatively related. In the short term, only a few specific variables show a significant influence on the GDP of the agricultural sector. These results affirm that indebtedness contributes positively to the agricultural sector, whereas the expenses associated with servicing that debt may hinder the sector's contribution. This study provides empirical evidence that fiscal policy plays a crucial role in the agricultural sector and needs to be considered. Therefore, debt management must be directed at an efficient and effective allocation, taking into account the benefits of loans and the risks posed by interest payment obligations and debt installments. The study builds on the fiscal policy literature that affects key sectors of developing countries. The use of annual data with 34 observations, as well as indicators of GDP in the agricultural sector, implies that the results of the study reflect more structural changes and sectoral proportions in the economy.

Keywords


Agricultural development; Debt service; Fiscal policy; Public debt; Vector Error Correction Model (VECM)

Full Text:

PDF

References


Alam, M. S. (2022). Is trade, energy consumption and economic growth threat to environmental quality in Bahrain–evidence from VECM and ARDL bound test approach. International Journal of Emergency Services, 11(3), 396–408. https://doi.org/10.1108/IJES-12-2021-0084

Alsamara, M., Mrabet, Z., & Mimouni, K. (2024). The threshold effects of public debt on economic growth in MENA countries: Do energy endowments matter? International Review of Economics and Finance, 89(PB), 458–470. https://doi.org/10.1016/j.iref.2023.10.015

Anh, D. L. T., Anh, N. T., & Chandio, A. A. (2023). Climate change and its impacts on Vietnam agriculture: A macroeconomic perspective. Ecological Informatics, 74, 101960. https://doi.org/10.1016/j.ecoinf.2022.101960

Ardianti, D. M., & Hartono, D. (2022). Internet Use and Agricultural Household Food Insecurity in Indonesia. Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi Dan Pembangunan, 23(2), 179–191. https://doi.org/10.23917/jep.v23i2.18077

Arowolo, O. T., & Ekum, M. I. (2016). Food Production Modelling Using Fixed Effect Panel Data for Nigeria and Other 14 West African Countries (1990-2013). American Journal of Theoretical and Applied Statistics, 5(4), 208-218. https://doi.org/10.11648/j.ajtas.20160504.17

Barro, R. J. (1979). On the Determination of the Public Debt. Journal of Political Economy, 87(5, Part 1), 940–971. https://doi.org/10.1086/260807

Breitung, J., & Franses, P. H. (1998). On Phillips – Perron-Type Tests for Seasonal Unit Roots. Econometric Theory, 14(2), 200–221. https://doi.org/10.1017/S0266466698142032

Central Bureau of Statistics Indonesia. (2025). Produk domestik bruto Indonesia menurut pengeluaran, 2020–2024. Badan Pusat Statistik.

Chandio, A. A., Gokmenoglu, K. K., Sethi, N., Ozdemir, D., & Jiang, Y. (2023). Examining the impacts of technological advancement on cereal production in ASEAN countries: Does information and communication technology matter? European Journal of Agronomy, 144, 126747. https://doi.org/10.1016/j.eja.2023.126747

Cheng, J., & Chang, S. (2025). Rare disasters, local currency-denominated external debt and sovereign default risk. Economics Letters, 250, 112313. https://doi.org/10.1016/j.econlet.2025.112313

Danish, Wang, B., & Wang, Z. (2018). Imported technology and CO2 emission in China: Collecting evidence through bound testing and VECM approach. Renewable and Sustainable Energy Reviews, 82, 4204–4214. https://doi.org/10.1016/j.rser.2017.11.002

Dauda, O. D., & Adamu, M. M. (2024). Effect of Increasing Public Debt on Agricultural Output in Nigeria: (1981-2022). Asian Journal of Economics, Business and Accounting, 24(5), 621–629. https://doi.org/10.9734/ajeba/2024/v24i51336

Dhahri, S., & Omri, A. (2020). Foreign capital towards SDGs 1 & 2—Ending Poverty and hunger: The role of agricultural production. Structural Change and Economic Dynamics, 53, 208–221. https://doi.org/10.1016/j.strueco.2020.02.004

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366), 427–431. https://doi.org/10.1080/01621459.1979.10482531

Ding, G., Vitenu-Sackey, P. A., Chen, W., Shi, X., Yan, J., & Yuan, S. (2021). The role of foreign capital and economic freedom in sustainable food production: Evidence from dld countries. PLoS ONE, 16(July), 1–21. https://doi.org/10.1371/journal.pone.0255186

Drean, B., & Lestari, E. W. (2021). Human Capital in Agriculture Sector in Indonesia. SPLASH Magz, 1(2), 86–92. https://doi.org/10.54204/splashmagzvol1no1pp86to92

Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and Error Correction : Representation, Estimation, and Testing. Econometrica, 55(2), 251–276. https://doi.org/10.2307/1913236

Fadhilah, K. N., Fitriyah, F. N., & Purnama, C. (2025). Tata Kelola Sektor Pertanian Sebagai Penunjang Pertumbuhan Perekonomian Indonesia. Jurnal Ilmiah Akuntansi Publik, Manajemen Dan Perbankan, 1(2), 70–77. Retrieved from https://jiapmp.hellowpustaka.id/index.php/i/article/view/13

Food and Agriculture Organization of the United Nations. (2024). Agriculture orientation index for government spending – UN FAO.

Fosu, A. K. (2010). The External Debt-Servicing Constraint and Public-Expenditure Composition in Sub-Saharan Africa. African Development Review, 22(3), 378–393. https://doi.org/10.1111/j.1467-8268.2010.00252.x

Greiner, A., & Fincke, B. (2014). Productive Government Spending, Public Debt and Growth. In Public Debt, Sustainability and Economic Growth (pp. 147–203). Springer, cham. https://doi.org/10.1007/978-3-319-09348-2_4

Gul, A., Xiumin, W., Chandio, A. A., Rehman, A., Siyal, S. A., & Asare, I. (2022). Tracking the effect of climatic and non-climatic elements on rice production in Pakistan using the ARDL approach. Environmental Science and Pollution Research, 29(21), 31886–31900. https://doi.org/10.1007/s11356-022-18541-3

Guo, Y., Zhang, Z., & Meng, H. (2025). The impact of the COVID-19 pandemic on sovereign debt default risk. Journal of Asian Economics, 99, 101932. https://doi.org/10.1016/j.asieco.2025.101932

Habanabakize, T., & Dickason-Koekemoer, Z. (2024). Analysing the socio-financial determinants shaping food production in the South African agriculture sector. Cogent Economics and Finance, 12(1), 2426541. https://doi.org/10.1080/23322039.2024.2426541

Hammad, S. A., Outhman, N. Y., Hamad, M. F., Faisal, G., Abdullah, T. H., & Ulkareem, A. A. (2024). The Impact of Domestic Public Debt on Agricultural Government Investment and Economic Growth: Evidence from Iraqi between 2004 and 2022. Research on World Agricultural Economy, 5(3), 37–50. https://doi.org/10.36956/rwae.v5i3.1124

Hardi, I., Saputra, J., Hadiyani, R., Maulana, A. R. R., & Idroes, G. M. (2023). Decrypting the Relationship Between Corruption and Human Development: Evidence from Indonesia. Ekonomikalia Journal of Economics, 1(1), 1–9. https://doi.org/10.60084/eje.v1i1.22

Hartanto, D., Radiman, R., & Adhani, A. (2020). Is Pattern of Government Spending Related With Environmental Sustainability in Asean Countries? Role of Debt Servicing, Development Expenditure and Social Investment. Journal of Security and Sustainability Issues, 10(Oct), 139–150. https://doi.org/10.9770/jssi.2020.10.Oct(10)

Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics & Control, 12(2–3), 231-254. https://doi.org/10.1016/0165-1889(88)90041-3

Junaedi, D., Norman, E., Salistia, F., Arsyad, M. R., & Paramansyah, A. (2022). Analysis of the Impact of Debt on the Indonesian Economy for the Period 1976-2021. International Conference on Islamic Economic, 1(1), 1–19. https://doi.org/10.58223/icie.v1i1.104

Kalinin, A. M., & Samokhvalov, V. A. (2020). Effectiveness of Financial Support to Agriculture: General Assessment and Inter-Budget Effect. Studies on Russian Economic Development, 31(5), 565–572. https://doi.org/10.1134/S1075700720050081

Kementerian Pertanian. (2023). Analisis PDB Sektor Pertanian Tahun 2023. Pusat Data Dan Sistem Informasi Pertanian, 1-47. Sekretariat Jenderal, Kementerian Pertanian RI. https://satudata.pertanian.go.id/details/publikasi/489

Kementerian Pertanian. (2025). Statistik Ketenagakerjaan Sektor Pertanian Agustus 2025. Pusat Data Dan Sistem Informasi Pertanian, 1-90. Sekretariat Jenderal, Kementerian Pertanian RI. https://satudata.pertanian.go.id/details/publikasi/926

Kuzman, B., Djuric, K., Mitrovic, L., & Prodanovic, R. (2017). Agricultural budget and agriculture development in Republic of Serbia. Ekonomika Poljoprivrede, 64(2), 515–531. https://doi.org/10.5937/ekopolj1702515k

Liu, Q., Lu, L., Tse, Y., & Wang, C. (2025). Sovereign debt risk, government ESG, and bank stock performance. Journal of Asian Economics, 101, 102079. https://doi.org/10.1016/j.asieco.2025.102079

Ma, Q., & Li, X. (2025). The impact of fiscal-financial synergistic support for agriculture on agricultural total factor productivity: Based on provincial panel data in China. International Review of Economics and Finance, 103, 104556. https://doi.org/10.1016/j.iref.2025.104556

Mabeta, J., Smutka, L., & Mrkvička, T. (2025). Impact of foreign direct investment on agricultural production and exports of SADC countries. Social Sciences and Humanities Open, 11, 101499. https://doi.org/10.1016/j.ssaho.2025.101499

Mehar, M. A. K. (2025). Role of external financing and sovereign debt in economic growth and development. Encyclopedia of Monetary Policy, Financial Markets and Banking, 3(2015), 16–29. https://doi.org/10.1016/B978-0-44-313776-1.00298-1

Menegaki, A. (2021). A note on the VECM approach in applications of the energy-growth nexus. A Guide to Econometrics Methods for the Energy-Growth Nexus, 2021, 103–113. https://doi.org/10.1016/B978-0-12-819039-5.00006-9

Mustafa, S., Khalil, R., & Ahmed, A. (2025). Foreign Direct Investment and its Impact on Agricultural Exports/ Iraq and Indonesia as a Model for the Period 1990-2020. Tanmiyat Al-Rafidain, 44(146), 28–51. https://doi.org/10.33899/tanra.2024.154419.1421

Ngatini. (2024). Utang Luar Negeri, Penanaman Modal Asing dan Kesejahteraan Masyarakat: Studi pada Tujuh Negara ASEAN. Indonesian Treasury Review: Jurnal Perbendaharaan Keuangan Negara Dan Kebijakan Publik, 9(3), 201–215. https://doi.org/10.33105/itrev.v9i3.980

Nugroho, A. D., Bhagat, P. R., Magda, R., & Lakner, Z. (2021). The impacts of economic globalization on agricultural value added in developing countries. PLOS ONE, 16(11), e0260043. https://doi.org/10.1371/journal.pone.0260043

Nuta, F. M. (2025). The significance of climate policy stringency, environmental taxation, and public debt in addressing climate change challenges. Journal of Environmental Management, 392, 126924. https://doi.org/10.1016/j.jenvman.2025.126924

Onyeneke, R. U., Ankrah, D. A., Atta-Ankomah, R., Agyarko, F. F., Onyeneke, C. J., & Nejad, J. G. (2023). Information and Communication Technologies and Agricultural Production: New Evidence from Africa. Applied Sciences, 13(6), 3918. https://doi.org/10.3390/app13063918

Ozdemir, D. (2024). Reconsidering agricultural credits and agricultural production nexus from a global perspective. Food and Energy Security, 13(1), e504. https://doi.org/10.1002/fes3.504

Pambudi, A. S. (2025). Optimalisasi Tata Kelola Pupuk Bersubsidi: Strategi Pencegahan Maladministrasi Berbasis Analisis SWOT dan PESTEL. Jurnal Administrasi Dan Manajemen, 15(4), 743–772. https://doi.org/10.52643/jam.v15i4.7393

Pratiwi, D. R. (2024). Kumpulan Analisis Siklus Pembahasan Nota Keuangan dan RAPBN 2024 Mitra Komisi XI. Pusat Analisis Anggaran Dan Akuntabilitas Keuangan Negara, 1–38. Accessed date: 1 February 2026, Available form https://berkas.dpr.go.id/pa3kn/analisis-apbn/public-file/analisis-apbn-public-93.pdf

Rahim, U. F., Naqvi, S. H. R., & Asma, M. (2023). Public Debt, Social Spending and Economic Growth: An Analysis for Developing Economies. Journal of Development and Social Sciences, 4(1), 697–706. Retrieved from https://www.ojs.jdss.org.pk/journal/article/view/873

Rangkuty, D. M., & Hidayat, M. (2021). Does Foreign Debt have an Impact on Indonesia’s Foreign Exchange Reserves? Ekuilibrium : Jurnal Ilmiah Bidang Ilmu Ekonomi, 16(1), 85-93. https://doi.org/10.24269/ekuilibrium.v16i1.3365

Rosyadi, R., Darma, S., & Darma, D. C. (2023). What Driving Gross Domestic Product of Agriculture? Lessons from Indonesia (2014-2021). International Journal of Sustainable Development and Planning, 18(3), 683–692. https://doi.org/10.18280/ijsdp.180304

Sangulla, L. J., George, W., & Mwinuka, L. (2025). Foreign direct investment and the agriculture sector performance in Tanzania: an autoregressive distributed lag approach. Cogent Food and Agriculture, 11(1). https://doi.org/10.1080/23311932.2025.2515489

Sekarani, R. A. A. F. (2025). Utang Publik yang Optimal bagi Pertumbuhan Ekonomi di Negara-Negara G20. Thesis. IPB University.

Semin, A. N., & Namyatova, L. E. (2019). Land as a Factor of Production in Agriculture and Features of Agricultural Practices. International Journal of Mechanical Engineering and Technology (IJMET), 10(02), 1515–1521. https://iaeme.com/Home/article_id/IJMET_10_02_157

Shabbir, S., & Yasin, M. H. (2015). Implications of Public External Debt for Social Spending: A Case Study of Selected Asian Developing Countries. The Lahore Journal of Economics, 20(1), 71–103. https://doi.org/10.35536/lje.2015.v20.i1.a3

Sims, C. A., Stock, J. H., & Watson1, M. W. (1990). Inference in linear time series models with some unit roots. Econometrica, 58(1), 113–144. https://doi.org/10.2307/2938337

Sogah, E., Tuffour, J. K., Mawutor, J. K. M., & Gborse, F. C. (2024). The relationship between external debt and agriculture GDP growth in Ghana: an ARDL cointegrating bound testing approach. Cogent Economics and Finance, 12(1), 2330426. https://doi.org/10.1080/23322039.2024.2330426

Solow, R. M. (1957). Technical Change And The Aggregate Production Function. Review of Economics and Statistics, 39(3), 312–320. https://doi.org/10.2307/1926047

Suryandaru, R. A. (2023). The Relationship Between Public Debt, Trade Openness, and Economic Growth in Indonesia: Symmetric and Asymmetric Analysis. Thailand and the World Economy, 41(1), 35–60. Retrieved from https://so05.tci-thaijo.org/index.php/TER/article/view/263114

Toriola, A. K., Salami, L. A., Oke-Bello, A. M., & Joseph, G. O. (2024). Effect of rising Public Debt on Growth of Agricultural and non-Agricutural Sector in Nigeria. International Journal of Food and Agricultural Economics, 12(1), 59–74. https://doi.org/10.22004/ag.econ.346744

Utama, C. (2020). The effect of twin-shock on monetary and fiscal policies in indonesia. Jurnal Ekonomi Malaysia, 54(2), 137–147. https://doi.org/10.17576/JEM-2020-5402-12

Wabwile, I., Abdillahi Ali, U., Simiyu, E. J., & Ngala, C. (2024). Foreign Direct Investment and Its Effect on Agricultural Productivity Kenya. International Journal of Finance & Banking Studies, 13(4), 48–57. https://doi.org/10.20525/ijfbs.v13i4.3736

World Bank. (2024). Publication: International Debt Report 2024. https://doi.org/10.1596/978-1-4648-2148-6

Xu, Z. (2019). Food Dependency and Global Food Crisis. International Critical Though, 9(2), 269–281. https://doi.org/10.1080/21598282.2019.1613920

Yudi, A. L. (2025). Sri Mulyani: Defisit APBN 2025 Diperkirakan Capai Rp 662 Triliun. Tempo.




DOI: https://doi.org/10.37046/jaj.v7i2.37279

Refbacks

  • There are currently no refbacks.


Copyright (c) 2026 Muhammad Azizan

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Jambura Agribusiness Journal (P-ISSN: 2685-5860, E-ISSN: 2685-5771) is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Powered by Public Knowledge Project OJS