“The rating upgrade shows maintained confidence of international stakeholder on the solid performance of Indonesia’s economy as a fruit of the concerted efforts in the area of monetary, fiscal, and structural reforms to ensure sound economic growth supported by macroeconomic stability," Bank Indonesia (BI) Governor Perry Warjiyo said in a press release issued here on Tuesday, March 17, 2020.
"Going forward, Bank Indonesia will remain cautious and continue to monitor global and domestic economic developments, including the impact of covid-19, while strengthening the policy mix and coordination with the Government and other relevant authorities to maintain macroeconomic stability, boost structural reforms and support growth momentum," he added.
According to R&I, there are a number of key factors that support the decision. First, firm implementation of policies to strengthen economic growth potential, on the back of a solidified political foundation. Second, keeping fiscal deficits in check, the government maintains its debt ratio at a low level. Third, foreign reserves are ample relative to short-term external debts.
Real gross domestic product (GDP) has been growing around 5 percent a year. As the global spread of the novel coronavirus could strain growth in the Indonesia economy, the government and the central bank are working to shore up the economy and maintain macroeconomic stability. Given the country’s underlying economic strength which remains intact and a stable political environment, R&I expects the economy to start to recover if the epidemic is brought under control.
On the external front, the current account balance has been in a small deficit. The balance will likely be in a deficit of 2-3 percent in 2020 and afterwards. Foreign reserves cover 7.4 months of imports and servicing of government external debt repayment.
On the fiscal side, the government maintains its commitment to ensure fiscal discipline. In 2020, the government projects a deficit of 1.76 percent of GDP. R&I positively views the government's efforts to improve the quality of expenditure to move forward its policy priorities of enhancing human capital and strengthening competitiveness.
R&I had previously affirmed Indonesia Sovereign Credit Rating at BBB/stable outlook on 26 April 2019.