Bank Indonesia Governor Perry Warjiyo (Photo; MI)
Bank Indonesia Governor Perry Warjiyo (Photo; MI)

Fitch's Affirmation on Indonesia's Rating Shows Strong Confidence from International Stakeholders: BI

Wahyu Dwi Anggoro • 29 June 2022 11:28
Jakarta: Governor of Bank Indonesia (BI), Perry Warjiyo, has stated that Fitch Ratings (Fitch)'s affirmation on Indonesia's rating shows strong confidence from international stakeholders on the Indonesia's maintained macroeconomic stability and medium-term economic prospects.
 
Fitch has affirmed Indonesia's Sovereign Credit Rating at BBB (investment grade) with a stable outlook, as announced on Tuesday, June 28, 2022. 
 
According to Fitch, key factors that support the affirmation are a favorable medium-term growth outlook and a low government debt/GDP ratio. 

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Fitch underscores several challenges including higher external debt ratios, low government revenue as well as weak structural features, such as governance indicators and GDP-per-capita compared to those from 'BBB' category peers.
 
"Going forward, Bank Indonesia will continue to closely monitor global and domestic economic and financial developments, formulate and execute the necessary policy measures to ensure macroeconomic and financial stability, including adjusting policy stances when necessary, as well as continue to strengthen the synergy with the Government to accelerate the national economic recovery," Perry said in a press release on Tuesday.
 
In their reports, Fitch expects that Indonesia's economy continue to recover smoothly. GDP growth will gradually recover to 5.6% in 2022 and 5.8% in 2023. The recovery is being supported by a pick-up in service sector as well as by strong exports supported by elevated commodity prices. Fitch projects that current account balance will record a small deficit of 0.4% of GDP in 2022 and 1.0% of GDP in 2023. With regard to inflation, Fitch views that the pressure on domestic inflation has been increasing, and yet inflation is still projected within target of 3+1%. Over medium-term, the domestic economy will grow by 5.8% in 2024, boosted by the implementation of the Omnibus Law on Job Creation, which aims to alleviate long-standing barriers to investment, and to continue infrastructure spending.
 
Fitch views that the government will meet the budget deficit target of below 3% in 2023 as reflected in the narrowing projected fiscal deficit of 4.3% in 2022 from 4.6% in 2021. As global commodity prices remain high, the budget has served as a shock absorber to support households through subsidies. Nevertheless, this increase in subsidies can be offset by higher revenue partly due to higher commodity prices. Fitch expects that the government debt will gradually decline over the year after reaching the pinnacle this year at 44.2% of GDP. This level is well below the 'BBB' category peers of 55.9%. Meanwhile, the less dependency on foreign financing is indicated by lower non-resident holdings of local-currency government bonds.
 
In Fitch's view, support from the central bank in financing fiscal deficit has helped reduce the government's interest costs. However, it should be emphasized that this measure will be terminated at the end of 2022, so that it will not pose a risk of lowering investor confidence to monetary policy credibility.
 
(WAH)
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