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