The debt rating agency, Fitch, has announced Indonesia’s debt rating which remain in BBB position with a stable outlook. Fitch stated that a positive factor in Indonesia’s debt rating was a low level of government debt burden and a good economic growth. More specifically, Fitch underlined the government’s efforts to maintain stability amid the pressure experienced by developing countries, such as Bank Indonesia’s policy of raising interest rates, controlling capital outflows, and keeping inflation at a low level.
Fiscal Consolidation: Indonesia’s Investment Grade Solution
Indonesia’s own debt rating, by Fitch, has entered the investment grade category since 2011 and increased to BBB level in December 2017. Previously, in May, Standard and Poor’s (S & P), in its press release set investment in Indonesia credit rating at BBB- with projected investment prospects to be stable.
The ratings are driven by the improvement in commodity prices in Indonesia which can be seen from Indonesia’s stable inflation. Until last June, based on data from the Central Statistics Agency (BPS), Indonesia’s inflation rate was at 1.90%. This means that the average increase in commodity prices is 1.9%. This achievement is better than the 2017 January-June inflation of 2.38%. This is also supported by looking at the ratio of government debt to gross domestic product (GDP) which is considered stable. The risks to the external financing burden faced by Indonesia are also considered to have declined.
In terms of ratings by Fitch, Indonesia’s external financial condition, according to Fitch, is stronger than the 2013 Tantrum Paper period as a result of fiscal policy discipline and macro-prudential measures that can reduce the sharp increase of private foreign debt. In addition, bilateral swap agreements with Australia, Japan and South Korea, as well as participation in the Chiang Mai Initiative are also things that support stability. According to Fitch, fiscal consolidation can improve Indonesia’s public debt position which is currently at a low level compared to the average peers’ countries. Fitch also said that Indonesia’s GDP growth was better than growth in peers countries. Fitch estimates that Indonesia’s GDP will increase by 5.2% in 2019 and 5.3% by 2020 supported by increased public infrastructure spending.
Fitch’s move in placing Indonesia in the rankings shows that the government’s focus on maintaining stability amid global turmoil is considered good, and structural and fiscal reforms are also considered positive. It also shows international confidence in the Indonesian economy. Appreciation of leading international institutions, such as rating agencies, on Indonesia’s economic performance is very important to realize a healthier, fairer and more independent APBN.
In this case, of course the government must be aware of various challenges to encourage economic growth through proactive steps through the management of the state budget and credible and effective fiscal policy. In addition, the role of the community and various parties is also important to realize an inclusive economy in the future.
Siaran Pers Kementerian Keuangan Republik Indonesia – Sekretariat Jenderal Biro Komunikasi dan Layanan Informasi Nomor 25/KLI/2018