Jakarta: Standard and Poor’s (S&P) has upgraded the Sovereign Credit Rating of the Republic of Indonesia from BBB-/ Stable Outlook to BBB/Stable Outlook this month.
“Indonesia welcomes the positive assessment of S&P. Now Indonesia holds the same level of investment grade status from the three major rating agencies, S&P, Moody’s and Fitch," Bank Indonesia (BI) Governor Perry Warjiyo said in a press release on Friday.
In its report, S&P stated that one of the key factors that support the decision is Indonesia’s strong economic growth prospects and supportive policy dynamics which is expected to remain following the re-election of President Joko Widodo recently.
Moreover, Indonesia’s sovereign credit rating improvement continues to be supported by the Government’s relatively low debt and its moderate fiscal performance.
"This is a reflection of the high level of confidence on the Indonesian economic prospect, which is supported by the monetary, financial sector, and fiscal policy synergy aimed to maintain macroeconomic stability while promoting the momentum of growth," he noted.
The Indonesian economy is growing faster than countries peers at a similar level of income. This reflects the Government’s policymaking has been effective in promoting sustainable public finances and balanced economic growth. Real GDP per capita growth in Indonesia is an impressive 4.1%, on a 10-year weighted-average basis, compared to an average of 2.2% across global sovereign at a similar income level. This reflects the constructive economic dynamics in Indonesia despite a challenging external environment over recent years.
Furthermore, consumption has been the leading contributor to real GDP growth, with investment also contributing a sizeable share over the past five years. These trends should remain in place if the Government continues to emphasize on investment in infrastructure and human capital.
From fiscal side, the ratio of general government debt is projected to be stable over the next few years, reflecting the fairly stable projected fiscal balance. Furthermore, the net general government debt to remain comfortably below 30% of GDP, given a contained fiscal deficit and consistent nominal GDP growth.
From external side, Bank Indonesia raised its policy rate by a total of 175 basis points. This proactive approach helped to manage risks stemming from Indonesia’s external vulnerabilities. Furthermore, S&P believes that Indonesia does not face extraordinary risk of a marked deterioration in the cost of external financing, based on its sustained strong access to the markets and foreign direct investment (FDI) over the recent years, even during periods of acute external volatility.
"Bank Indonesia and the Government remain committed to continue structural reforms to reach a strong, sustainable, balanced and inclusive economic growth.” he remarked.
S&P had previously affirmed Indonesia’s Sovereign Credit Rating at BBB- /Stable Outlook in May 2018.