Fitch: Indonesia’s Rating at BBB with Stable Outlook
Date 12 Agustus 2020
Credit ratings agency Fitch Ratings has reaffirmed Indonesia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB’ with a Stable Outlook.
In its report, Fitch stated that Indonesia’s stable rating was driven by good medium-term growth prospects and a low debt to Gross Domestic Product (GDP) ratio compared to that of peer countries in the BBB category.
On the other hand, Fitch expressed belief that the Indonesian Government needs to reduce dependence on external parties, increase state revenues, accelerate structural reforms, and increase GDP per capita.
Fitch also expressed appreciation to the Indonesian Government for responding quickly to the crisis with various assistance measures to support households and businesses, including Small and Medium Enterprises (SMEs).
Fitch also expressed belief that the Government has taken some extraordinary interim measures, including a three-year suspension of the 3% deficit ceiling of Gross Domestic Product (GDP) and direct central bank financing of the deficit. The policy is supported by a prudent fiscal policy in recent years so that Indonesia has more opportunities to resolve the pandemic.
In supporting the fulfillment of the State Budget financing, central bank of Indonesia (BI) has announced it will purchase Government Securities (SBN) on the primary market through non-competitive auctions and through a special private placement instruments intended for financing public goods.
Fitch also considers that the design of a “burden sharing” scheme in which the BI will bear part of the cost of additional debt issuance to be able to answer higher spending needs. This burden sharing will help reduce the Government’s direct interest costs, and according to Fitch, it will not provide inflationary pressures.
According to Fitch, Indonesia’s discipline on monetary policy in recent years has given confidence that the scheme will only be temporary and more due to an unusual pandemic situation.
Fitch’s measure to maintain Indonesia’s debt rating at the BBB position with a stable outlook shows that the Government’s policy to overcome the pandemic has been on the right track so far.
The Government policy stated in the fiscal stimulus has three objectives:
First, improving health services in order to cope with the outbreak.
Second, providing assistance to the affected lower-class communities.
Third, increasing the resilience of the business sector following the outbreak. This policy is expected to help the Indonesian economy to anticipate a recession, and to optimize and maintain Indonesia’s economic stability. (Ministry of Finance / EN)
Translated by: Estu Widyamurti
Reviewed by: M. Ersan Pamungkas