Moody's has affirmed Indonesia's Sovereign Credit Rating at Baa2 with a stable outlook, as announced on February 10, 2022. Referring to Moody's statement, key factors that contribute the affirmation are mainly continued economic resilience and preserved monetary and macroeconomic policy effectiveness. The structural reform taken by the Government is also believed will support investment and export competitiveness. On the other hand, revenue reforms and plan on fiscal normalization will support debt burden stabilization.

In response, Governor of Bank Indonesia, Perry Warjiyo stated that, “Moody's affirmation on Indonesia's rating at Baa2 / stable outlook reflects the positive recognition of Moody's, as one of leading rating agencies in the world. Indeed, Indonesia's macroeconomic and financial system stability has been well maintained, as well as its medium-term economic prospect, which remain strong amid the build-up of external pressure. This has supported by the credibility of the policies and strong policy mix involving Bank Indonesia, the Government and related  authorities. Going forward, Bank Indonesia will continue to monitor global and domestic economic developments closely, 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."

Moody's expects that Indonesia's economic growth will return to its pre-pandemic level of 5.0% on average over the next two years. This growth level is above the median for the Baa-rated peers of 3.7%. The economic recovery is boosted by the direction and pace of structural reform, such as the Omnibus Law on Job Creation and Tax Harmonization Law, which aims to improve investment climate and increase revenue.

On the fiscal side, Moody's observes that the debt level will drift upward until 2023, peaking at 42.5% of GDP but significantly still below the median for the Baa-rated peers of 64% of GDP. Moody's perceives that the debt affordability and the share of foreign currency borrowing still pose risks towards fiscal strength.

Moody's views that the strategy of monetary and fiscal policy normalization lay foundation on policy credibility. The central bank support on deficit financing has contributed to a normalization of bond yield and allowed greater flexibility for the Government to allocate more on productive spending. Moody's emphasizes that timely unwinding of the policy support will be crucial in preserving the policy credibility.

Moody's previously maintained Indonesia's Sovereign Credit Rating at Baa2 with a Stable outlook on February 10, 2020.

Jakarta, 10 February 2022
Head of Communication Department
Erwin Haryono
Executive Director