According to JCR, key factors that support the decision are Indonesia’s solid domestic demand-led growth potential, restrained public debt, and resilience to external shocks supported by accumulation of foreign exchange reserves.
JCR expects the debt will gradually decrease as the fiscal balance improves mainly due to the increase in revenue due to positive growth and higher commodity prices, despite a relatively high dependence on natural resources and weaker revenue base.
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JCR previously affirmed Indonesia Sovereign Credit Rating at BBB+ with stable outlook (two level above the lowest level of investment grade) in December 2020.
“The ratings mainly reflect the country’s solid domestic demand-led economic growth potential, restrained public debt and resilience to external shocks supported by accumulation of foreign exchange reserves. On the other hand, the ratings are constrained by its relatively high dependence on natural resources and weaker revenue base,” JCR said in a press release on Wednesday.
Economic Recovery
JCR views that Indonesia’s economy recovery will continue to improve.
The growth rate is expected to exceed 5% in 2022, mainly led by private consumption, fixed capital formation, and exports, which will be boosted by higher commodity prices.
From the fiscal side, the government has just raised the value added tax rate in April 2022 as part of its efforts to increase revenues, which intends to improve the fiscal balance, to abide its commitment to bring back budget deficit to become less than 3% of GDP in 2023.
In addition to the government’s efforts, revenue is increasing due to economic expansion and rising commodity prices.
JCR expects the budget deficit to be around 4.0% of GDP in 2022 and to continue to decline in 2023.
Current Account Surplus
On the external front, JCR expects the current account surplus to continue in 2022 supported by rising commodity prices in the near term.
A steady influx of direct investment is likely to continue in the future given improvement in the business environment by the President Joko Widodo administration.
Indonesia stays resilient to external shocks supported by foreign exchange reserves equivalent to about 6.6 months of imports.
“JCR’s affirmation on Indonesia’s rating at BBB+/stable outlook shows a strong international stakeholders confidence on the Indonesia’s maintained macroeconomic stability and medium-term economic prospects, amidst the risks on domestic economic growth posed by global economic moderation. This supported by the credibility of the policies and the effective policy mix of Bank Indonesia and the Government,” Bank Indonesia (BI) Governor Perry Warjiyo said in a media release on Wednesday.
“Going forward, Bank Indonesia will continue to closely monitor global and domestic economic and financial developments, formulate and execute the necessary policy measures to ensure macroeconomic and financial stability, including adjusting policy stances when necessary, as well as continue to strengthen the synergy with the Government to accelerate the national economic recovery,” he added.
(WAH)
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