The credit rating agency Moody’s has today awarded a rating upgrade for Indonesia, from Baa3 positive outlook to Baa2 stable outlook (equivalent to BBB level). Thus, Indonesia has possessed Baa2/BBB rating from four institutions, namely Fitch (December 2017), JCRA (February 12, 2018), R&I (March 7, 2018), and Moody’s.
In its report, Moody’s stated that the rating upgrade is supported, among others, by the more credible and effective policy framework of the Government and other authorities in supporting the macroeconomic stability. According to Moody’s, more prudent fiscal policy and monetary conducive policy can reduce pressure from both internal and external sources. Moody’s also appraised that the improved diversification of export bases has helped to maintain the economic stability, especially in the improvement of the current account deficit. In addition, Indonesia’s high and stable economic growth, as well as the healthy banking system, also became a positive note in the upgrading of Indonesia’s credit rating.
From a fiscal perspective, the deficit in the State Budget (APBN) which is always below 3 percent indicates the Government’s discipline in maintaining sustainability and fiscal health.
Based on the Moody’s projection, by taking into account the financing needs for productive expenditure acceleration, the Government of Indonesia’s debt level will remain below other countries in the investment grade group. This demonstrates the optimism of external parties towards Indonesia’s fiscal health, both for current and the future.
According to Moody’s rating definition, Baa2 rating implies that Indonesian securities belong to the category of “moderate credit risk” and “medium grade”. Stable outlook describes the rating position that is predicted to be stable in the foreseeable future, as well as showing a balanced risk. Some countries in the same rating position as Indonesia among others are Spain, Colombia, Uruguay, Philippines, Bulgaria, India, Italy, and Panama.
The decision to upgrade Indonesia’s credit rating indicates that the Government’s structural and fiscal reforms along with other stakeholders including Bank Indonesia are considered satisfying. Nevertheless, the Government is also aware that there are still a lot of challenges to overcome in encouraging the more sustainable and equitable economic growth. The Government has and will continue to take proactive actions to actualize such targets through the management of the state budget along with credible and effective fiscal policies.
Nufransa Wira Sakti – Head of Communications and Information Services Bureau
Ministry of Finance – Republic of Indonesia
General Secretariat of Communication Bureau and Information Service