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3/22/2021 12:00 AM
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Fitch Affirms Indonesia’s Sovereign Credit Rating at BBB/Stable Outlook (Investment Grade)

Rating Agencies & Int'l Institutions Report

No.   23/74/DKom

Fitch Ratings (Fitch) has affirmed Indonesia's Sovereign Credit Rating at BBB with a stable outlook, as announced on 12 March 2021. According to Fitch, key factors that support the affirmation are a favorable medium-term growth outlook and a 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 '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 reflects the acknowledgement of international stakeholder on Indonesia's maintained macroeconomic stability and economic prospects in the medium-term amid the COVID-19 pandemic. This supported by the credibility of the policies and strong policy coordination both nationally and among the Financial System Stability Committee members: Bank Indonesia, Ministry of Finance, Financial Services Authority, and Deposit Insurance Institution. 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."

In its assessment, Fitch forecasts Indonesia's GDP growth to gradually recover to 5.3% in 2021 and 6% in 2022, from a contraction of 2.1% in 2020 induced by the Covid-19 pandemic. The recovery is being supported by government stimulus spending and net exports, including from improved commodity prices. In addition, the growth momentum will also be supported by infrastructure spending. The recovery will depend on handling the spread of COVID-19, especially through vaccinations acceleration. Over the medium term, Fitch projects growth to receive a boost from implementation of the Omnibus Law on Job Creation which aims to alleviate several long-standing barriers to investment. Fitch also take notes on the establishment of the Indonesia Investment Authority, which is intended to help finance infrastructure development over the next few years.

Fitch expects the fiscal deficit to narrow only marginally in 2021 to 5.6% from 6.1% in 2020, broadly in line with the government's target. In 2021, government-spending remains focused on alleviating the impact of the health crisis, reflected on higher spending allocation for health and relief measures to support households and businesses to 4.2% of GDP from 3.8% of GDP in 2020. The government aims to adhere to its temporarily suspended 3% deficit ceiling again by 2023. Fitch expects the revenue ratio to recover gradually to 12.3% of GDP in 2021 and 12.8% in 2022 as the economy recovers, from 12.1% in 2020. According to Fitch, the impact of the pandemic on Indonesia's fiscal metrics has been less severe than for most of its peers.

In Fitch's view, support from Bank Indonesia in financing fiscal deficit has helped reduce the government's interest costs and supported the acceleration of economic recovery. However, it should be emphasized that this measure is temporary, so that it does not pose a risk of lowering investor confidence to monetary policy credibility. BI has also responded to the pandemic with cuts in its policy rates by 150 bps in total since early 2020, easing of macroprudential policies and by providing ample liquidity to the banking system. BI's foreign exchange buffers strengthened to USD138.8 billion by end-February from USD121.0 billion end-March 2020, as the current account deficit narrowed to 0.4% of GDP in 2020 from 2.7% in 2019.

Fitch had previously affirmed Indonesia Sovereign Credit Rating at BBB/stable (Investment Grade) outlook on 10 August 2020.


Jakarta, 22nd March 2021
Head of Communication Department
Erwin Haryono

Executive Director

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Halaman ini terakhir diperbarui 4/14/2021 1:00 PM
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