Ratings Agency S&P Raises Indonesia’s Sovereign Rating to BBB

June 2019

Credit rating agency, Standard & Poor’s (S&P) upgraded the Sovereign Credit Rating of the Republic of Indonesia from BBB-/ Stable Outlook to BBB/Stable Outlook on 31 May 2019. In its report, S&P stated that one of the key factors that support the decision is Indonesia’s strong economic growth prospects and supportive policy dynamics which is expected to remain following the re-election of President Joko Widodo recently. Moreover, Indonesia’s sovereign credit rating improvement continues to be supported by the Government’s relatively low debt and its moderate fiscal performance. Previously in May 2017, Moody’s Investors Service, Fitch Ratings, and S&P raised the country’ rating to the lowest investment grade, BBB-.

S&P believes that Indonesia does not face any extraordinary risk of a marked deterioration in the cost of external financing, due to its sustained strong access to the markets and foreign direct investment (FDI) over the recent years, even during periods of acute external volatility.

Indonesia’s economy has been growing at approximately 5%, despite market volatilities and the impact from the Sino-US trade war. Furthermore, the government is projecting a growth between 3.5% – 5.6% even in light of diminishing global demand and the potential further impact of the trade war. Real GDP per capita growth in Indonesia is around 4.1%, on a 10-year weighted-average basis, compared to an average of 2.2% across global sovereign at a similar income level.

Consumption has been a leading contributor to real GDP growth, with investment also contributing a sizeable share over the past five years. These trends are expected to remain in place if President Widodo and his government continues to emphasize on investment in Infrastructure and human capital. From the fiscal side, the ratio of general government debt is projected to be stable over the next few years, reflecting the fairly stable projected fiscal balance. The net general government debt can be expected to remain comfortably below 30% of GDP, given a contained fiscal deficit and consistent nominal GDP growth.

(source: The Star; Bloomberg)

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