"The affirmation on Indonesia’s rating to Baa2 level by Moody’s, has confirmed the international stakeholders’ optimism over the prospects of Indonesia's economic performance despite the domestic and global challenges," Bank Indonesia (BI) Governor Perry Warjiyo said in a press release issued on Monday, February 10, 2020.
"Still positive economic prospect is the result of a harmonious policy synergy between Bank Indonesia and the Government in maintaining macroeconomic stability while promoting economic growth momentum," he added
According to Moody’s, key factors that support the affirmation are a robust and stable growth rates and a low government debt burden, preserved by consistent fiscal discipline and emphasis on macroeconomic stability. On the other hand, Moody’s highlights some challenges face include a weak revenue base, the government’s reliance on external market funding, and an economic structure that remains vulnerable to commodity cycles.
Even in a relatively slow-growth phase, Indonesia’s economy continues to outpace most Baa-rated sovereigns. Moody’s expects that ongoing reform will address challenges such as structural economic and regulatory bottlenecks, a burdensome and often opaque legal and regulatory system, and shallow domestic financial markets, although the process is likely to be gradual.
On fiscal side, Indonesia maintains a low government debt burden and moderate current account deficit underpinned by a prudent policy framework and an emphasis on maintaining macrostability. Fiscal discipline is anchored by very strong adherence to a statutory deficit ceiling. Moody’s projects government debt to remain stable around 30% of GDP in the near to medium term.
On the external side, Moody’s estimates that Indonesia’s current account deficit still remains modest in comparison with other Baa peers. Moreover, external buffers are sufficient to withstand some degree of shock, denoting strong reserve adequacy.
Moody’s had previously upgraded Indonesia Sovereign Credit Rating to Baa2/stable outlook from Baa3/ positive outlook (Investment Grade) on April 13, 2018.