No.23/311/DKom
Fitch Ratings (Fitch) has affirmed Indonesia's Sovereign Credit Rating at BBB with a stable outlook, as announced on November 22, 2021. According
to Fitch, key factors that support the affirmation are Indonesia's
favorable medium-term growth outlook and low, but rising, government
debt/GDP ratio. On the other hand, Fitch underscores challenges
including a high dependence on external financing, low government
revenue, and lagging structural features such as governance indicators
and GDP per capita compared with other 'BBB' category countries.
In
response, Governor of Bank Indonesia, Perry Warjiyo stated that,
“Fitch's affirmation on Indonesia's rating at BBB/stable outlook
reflects the acknowledgement of Fitch, as one of leading rating agencies
in the world, for Indonesia's macroeconomic and financial system
stability that is maintained as well as medium-term economic prospects
which remain strong amid uneven global economic recovery and uncertainty
in global financial market. This supported by the credibility of the
policies and strong coordination of policy mix between Bank Indonesia
and the Government. Going forward, Bank Indonesia will continue to
closely monitor global and domestic economic developments, take the
necessary policy measures to ensure macroeconomic and financial system
stability and continue the synergy with the Government to accelerate the
national economic recovery."
Following
the ease of Covid-19 cases after the high resurgence during June to
August 2021, Fitch foresee Indonesia's GDP in 2021 have the potential to
grow higher compare to their 3.2% forecast, supported by recovery of
mobility and high export commodity prices. Fitch also forecast growth
will accelerate to 6.8% in 2022, and remain at around 6% over the next
few years, supported by the impact of Omnibus Law on Job Creation
implementation on investment.
On the
fiscal side, the Harmonization of Tax Regulations (UU HPP) should help
the government to meet the deficit target of below 3% of GDP in 2023. In
line with that, Fitch forecasts the fiscal deficit will reach 5.4% in
2021 and decline to 4.5% in 2022, slightly narrower than the government
targets presented in the government's 2022 budget of 5.8% and 4.9%,
respectively, which exclude the positive impact of the tax reform.
Nevertheless, long-standing challenges in raising the revenue ratio more
significantly remain in Fitch's view, including to expand the tax base
and improve compliance. In terms of fiscal financing, Bank Indonesia's
initiative to support and finance health and humanitarian care to deal
with the impact of Covid-19 pandemic are helping to keep government
interest costs down and free up resources for relief measures. In order
to maintain a positive response from market participants to this policy,
Fitch views that this policy should not be applied for a long time.
From
the external side, Fitch views an improving Indonesia's resilience, as
can be seen from the increase in foreign exchange reserves and FDI
inflows as well as support from swap line cooperation with other central
banks. This is also supported by inflation rate which estimated to
remain within the target range of 3%±1%, in line with low domestic
demand pressure and limited impact of rising international oil prices on
domestic fuel prices. Nevertheless, Indonesia remains vulnerable to
shifts in investor sentiment, given the high dependence on portfolio
inflows and commodity exports.
Fitch previously maintained Indonesia's Sovereign Credit Rating at BBB with a Stable outlook on March 22, 2021.
Jakarta, 23th November 2021
Head of Communication Department
Erwin Haryono
Executive Director
