Moody’s Affirms Indonesia’s Sovereign Credit Rating at Baa2/Stable Outlook (Investment Grade) - Bank Sentral Republik Indonesia
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August 11, 2020

No. 22/11/DKom
Moody’s Investors Service (Moody’s) has affirmed Indonesia’s Sovereign Credit Rating at Baa2 with a stable outlook, as announced on 10 February 2020. In response to the statement, Governor of Bank Indonesia, Perry Warjiyo stated that “The affirmation on Indonesia’s rating to Baa2 level by Moody’s, has confirmed the international stakeholders’ optimism over the prospects of Indonesia's economic performance despite the domestic and global challenges. The still positive economic prospect is the result of a harmonious policy synergy between Bank Indonesia and the Government in maintaining macroeconomic stability while promoting economic growth momentum. Going forward, Bank Indonesia will monitor domestic and global economic development in using its room to implement an accommodative policy mix in order to maintain controlled inflation and external stability as well as to support economic growth momentum.”

According to Moody’s, key factors that support the affirmation are a robust and stable growth rates and a low government debt burden, preserved by consistent fiscal discipline and emphasis on macroeconomic stability. On the other hand, Moody’s highlights some challenges face include a weak revenue base, the government’s reliance on external market funding, and an economic structure that remains vulnerable to commodity cycles.

Moody’s sees, a nominal GDP of just over $1.0 trillion and a population of more than 260 million coupled with a robust pace of population growth, support the economy’s shock-absorption capacity. Even in a relatively slow-growth phase, Indonesia’s economy continues to outpace most Baa-rated sovereigns. Moody’s expects that ongoing reform will address challenges such as structural economic and regulatory bottlenecks, a burdensome and often opaque legal and regulatory system, and shallow domestic financial markets, although the process is likely to be gradual.

Moody’s noted that over recent years, reforms have primarily focused on building infrastructure, particularly transport connectivity, and deregulating policies to unlock investment. The administration has expanded on these priorities to also include an emphasis on human capital development, by policies directed at addressing gaps in education and healthcare. Additionally, there is a renewed focus on improving the ease of doing business, both through planned changes to labor and tax regulations, and a streamlining of policies and procedure.

On fiscal side, Indonesia maintains a low government debt burden and moderate current account deficit underpinned by a prudent policy framework and an emphasis on maintaining macrostability. Fiscal discipline is anchored by very strong adherence to a statutory deficit ceiling. Moody’s projects government debt to remain stable around 30% of GDP in the near to medium term.

On the external side, Moody’s estimates that Indonesia’s current account deficit still remains modest in comparison with other Baa peers. Moreover, external buffers are sufficient to withstand some degree of shock, denoting strong reserve adequacy.

Moody’s had previously upgraded Indonesia Sovereign Credit Rating to Baa2/stable outlook from Baa3/ positive outlook (Investment Grade) on April 13, 2018.

Jakarta, 10th February 2020

Onny Widjanarko
Executive Director



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