No. 24/164/DKom
Fitch
Ratings (Fitch) has affirmed Indonesia's Sovereign Credit Rating at BBB
(investment grade) with a stable outlook, as announced today, June 28,
2022. According to Fitch, key factors that support the
affirmation are a favorable medium-term growth outlook and a low
government debt/GDP ratio. Fitch underscores several challenges
including higher external debt ratios, low government revenue as well as
weak structural features, such as governance indicators and
GDP-per-capita compared to those from 'BBB' category peers.
In
response to the statement, Governor of Bank Indonesia, Perry Warjiyo,
stated that Fitch's affirmation on Indonesia's rating at BBB/stable
outlook shows strong confidence from international stakeholders on the
Indonesia's maintained macroeconomic stability and medium-term economic
prospects, amidst elevated global economic uncertainty, emerging risk of
stagflation due to the increase in global policy rate amid global
economic recovery, as well as the expansion of inward-looking policies
in some countries. This is supported by the credibility of the policies
and the effective policy mix orchestrated by Bank Indonesia and the
Government. 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.
In
their reports, Fitch expects that Indonesia's economy continue to
recover smoothly. GDP growth will gradually recover to 5.6% in 2022 and
5.8% in 2023. The recovery is being supported by a pick-up in service
sector as well as by strong exports supported by elevated commodity
prices. Fitch projects that current account balance will record a small
deficit of 0.4% of GDP in 2022 and 1.0% of GDP in 2023. With regard to
inflation, Fitch views that the pressure on domestic inflation has been
increasing, and yet inflation is still projected within target of 3+1%.
Over medium-term, the domestic economy will grow by 5.8% in 2024,
boosted by the implementation of the Omnibus Law on Job Creation, which
aims to alleviate long-standing barriers to investment, and to continue
infrastructure spending.
Fitch views
that the government will meet the budget deficit target of below 3% in
2023 as reflected in the narrowing projected fiscal deficit of 4.3% in
2022 from 4.6% in 2021. As global commodity prices remain high, the
budget has served as a shock absorber to support households through
subsidies. Nevertheless, this increase in subsidies can be offset by
higher revenue partly due to higher commodity prices. Fitch expects that
the government debt will gradually decline over the year after reaching
the pinnacle this year at 44.2% of GDP. This level is well below the
'BBB' category peers of 55.9%. Meanwhile, the less dependency on foreign
financing is indicated by lower non-resident holdings of local-currency
government bonds.
In Fitch's view,
support from Bank Indonesia in financing fiscal deficit has helped
reduce the government's interest costs. However, it should be emphasized
that this measure will be terminated at the end of 2022, so that it
will not pose a risk of lowering investor confidence to monetary policy
credibility.
Fitch had previously affirmed Indonesia Sovereign Credit Rating at BBB with stable outlook on November 22, 2021.
Jakarta, 28 June 2022
Head of Communication Department
Erwin Haryono
Executive Director