Fitch Ratings Reaffirmed Indonesia’ Rating on Investment Grade Level
Fitch Ratings on its report, reaffirmed Indonesia’s long-term foreign-currency Issuer Default Rating (IDR) at ‘BBB’ or investment grade with a Stable Outlook. On September 2, 2018, Fitch also maintained Indonesia’s rating on the Investment Grade level.
According to Fitch, some of the key factors supporting this decision were the prospect of good economic growth and relatively low government debt burden amid challenges which included, among others, the continued strong dependence on external funding sources, low government revenues, and other structural indicators that were still below the state peers.
The prospect of economic growth continues to show strength compared to peer countries. Domestic demand is expected to remain resilient amid limited export performance influenced by slowing global demand.
Consumption and investment remain the main sources of growth along with the existence of bonus salaries of civil servants, increased social assistance funds, and the implementation of various infrastructure projects, especially by state-owned enterprises (SOEs).
Externally, Indonesia’s sovereign credit is believed to remain resilient in the face of the possibility of significant exchange rate movements in the event of market turmoil if the United States monetary authorities re-tighten monetary policy at the end of the year.
The low government debt burden compared to peer countries is a pressure-reducing factor while large banks have resilience to significant pressure conditions. Consumer Prices inflation (CPI) on average is expected to reach 3.4 percent in 2019 and policy interest rates are not expected to change.
This is in line with BI’s goal to strengthen external stability by controlling the current account deficit and maintaining the attractiveness of Indonesia’s financial assets. BI is also expected to take easing macro prudential policies in the near future.
On the fiscal side, reducing fiscal deficits ahead of the 2019 election shows Indonesia’s conservative attitude in the field of fiscal policy. The fiscal deficit was recorded at 1.8 percent of GDP in 2018 or lower than the fiscal deficit in 2017 which reached 2.3 percent, largely supported by high revenue growth and efforts to improve tax revenues.
Furthermore, the risks originating from the banking sector are considered to be limited along with strong bank capital, with a capital adequacy ratio reaching 22.9 percent in December 2018.In general, bank liabilities in foreign currencies can be covered with assets or hedged. In addition, some obligations are financing originating from the parent company.
Responding to this, Governor of BI Perry Warjiyo said, affirmation of Indonesia’s rating at the BBB level with a stable outlook reflects the confidence of rating agencies on the Indonesian economy and the resilience of Indonesia’s external sector amid global economic conditions that are still filled with uncertainty.
“Going forward, Bank Indonesia will continue to consistently pursue a policy mix to strengthen external stability and encourage the momentum of economic growth. For this reason, coordination with the government and related authorities will also continue to be strengthened,” he added.