Standard and Poor's (S&P) affirms the Sovereign Credit Rating of the Republic of Indonesia at BBB/Negative Outlook as announced on April 22^nd, 2021.

In its report, S&P states that the ratings on Indonesia is affirmed at BBB reflecting the country's solid economic growth prospects and historically judicious policy dynamics that the authorities continue to pursue. Meanwhile, fiscal risks and external risks related to the Covid-19 pandemic still need to be considered.

In response to the statement, Governor of Bank Indonesia, Perry Warjiyo, stated that “The rating affirmation shows that, in the midst of the ongoing COVID-19 pandemic, the confidence of international stakeholder on the Indonesia's maintained macroeconomic stability and economic prospects in the medium-term remained strong. 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 to strengthen the synergy with the Government to accelerate the national economic recovery."

In 2020, the Indonesian economy contracted by 2.1% in 2020, relatively modest compared to other countries in the region. The fiscal policy response and measurable restrictions on mobility during a pandemic can mitigate the negative impact on the economy. S&P expects Indonesia's growth recovery to gain traction into 2022 as the pace of vaccination picks up and economic activity gradually normalizes. The landmark Job Creation law passed by the government in November 2020 should generate employment and foreign direct investment, supporting long-term growth.

On the external front, Indonesia's foreign exchange reserves steadily increase and reached an all-time high in February 2021 due to reduced imports and a flexible exchange rate regime. S&P viewed that the ability of Indonesia to pay short-term external borrowings is well maintained, supported by implementation of prudential policy measures to manage the risks of private sector short-term external borrowing. Furthermore, foreign-currency-denominated debt has fallen well below 40% of total debt. Foreign ownership of rupiah-denominated government bonds as a proportion of the total outstanding stock also fell sharply in 2020.

On the fiscal front, in the short term, S&P expects the government to maintain its supportive fiscal stance to underpin the recovery. As such, deficits should remain materially higher than the government's historical average over the period. S&P views that fiscal support is still needed to mitigate the impact of the pandemic and support economic recovery. Nevertheless, S&P expects the government to gradually restore a more prudent fiscal stance.

S&P highlighted the important role of Bank Indonesia in supporting the country's ability to sustain economic growth and attenuate economic or financial shocks. Bank Indonesia's move to purchase government securities in the primary market as a last resort, can help the government to manage funding needs and reduce interest expenses when the financial market is under pressure. S&P views that this policy does not pose a significant impact on inflation and bond yields.

S&P had previously affirmed Indonesia's Sovereign Credit Rating at BBB and revised the outlook from Stable to Negative on 17 April 2020.

Head of Communication Department

Erwin Haryono

Executive Director

Information about Bank Indonesia

Tel. 021-131, Email: bicara@bi.go.id