Fitch: Indonesia’s BBB Outlook Stable Credit Rating

According to a recent press release from Indonesia’s Ministry of Finance, Fitch Ratings has announced that Indonesia’s BBB credit rating and outlook are stable. This affirmation is a form of acknowledgment of macroeconomic stability and Indonesia’s economic prospects going forward, amidst a global situation that is experiencing increased risk and uncertainty. 

Fitch assesses that the prospects for Indonesia’s economic growth in the medium term are relatively good, while the government’s debt-to-GDP ratio is considered low. On the other hand, two challenges that are of concern to Fitch are APBN revenues which are still relatively low, and structural indicators, such as governance indicators, which are lower compared to other countries at the same rating.

Like other countries, Indonesia is currently also facing increasing yields on state bonds and a weakening exchange rate against the US dollar. However, Fitch sees Indonesia as having a better position than its peer countries, partly due to Indonesia’s position as a commodity exporting country. 

With strong export performance and the ongoing recovery of the domestic economy, Fitch estimates Indonesia’s economic growth in 2022 will reach 5.2-percent. Meanwhile, for 2023, Fitch estimates growth will slow to 4.8-percent due to weak domestic and external demand, as a consequence of rising interest rates and normalizing commodity prices. On the other hand, Fitch assesses that the recovery in the tourism sector can be a factor driving growth in 2023. 

In the medium term, Fitch projects that Indonesia’s economic growth in 2024 will strengthen to 5.6-percent, far above the country’s average economic growth with a ‘BBB’ rating category of 3.5-percent. In this regard, Fitch believes that the implementation of structural reforms, including the Job Creation Law, will be able to encourage greater investment. 

In addition, it is hoped that the Government will continue to focus on infrastructure development, including the sustainability of the construction of the new capital city. 

Furthermore, Fitch believes that the Government’s commitment to return to a budget deficit ceiling of below 3-percent of GDP by 2023 will be achieved. Fitch estimates that the fiscal deficit will continue to decline from 4.6-percent in 2021, to 3.4-percent in 2022, and 2.9-percent in 2023. This shows that Indonesia will be one of the first countries in the Asia-Pacific capable of returning to pre-pandemic levels of fiscal deficits.

Even though the Indonesian economy still shows resilience in the midst of increasing risks and uncertainties in the global economy, the Government continues to be aware of factors that have the potential to provide serious downside risks to the economy. With these considerations, the 2023 State Budget is designed to be optimistic but remain vigilant. The government continues to optimize the state budget as a shock absorber to protect people’s purchasing power, control inflation, and maintain the momentum of economic recovery, by ensuring that the state budget remains healthy and sustainable. 

In addition, the APBN is also directed to encourage increased productivity and economic transformation that is inclusive and sustainable. To support this, the Government continues to strengthen collaboration with monetary authorities and the financial sector, through a synergistic policy mix.  

Source: Ministry of Finance

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