Fitch Affirms Indonesia’s Sovereign Credit Rating at BBB/Stable Outlook (Investment Grade) - Bank Sentral Republik Indonesia
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February 20, 2020

No. 22/5/DKom
Fitch Ratings (Fitch) has affirmed Indonesia’s Sovereign Credit Rating at BBB with a stable outlook, as announced on 24 January 2020. 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 Fitch on Indonesia’s economic resilience amidst ongoing global economic dynamics, supported by strong synergy of policy mix between Bank Indonesia and the Government. Going forward, Bank Indonesia will continue to monitor domestic and global economic development in using its room to implement an accommodative policy mix and strengthen coordination with the Government in order to boost Indonesian economic growth momentum.”

According to Fitch, key factors that support the affirmation are a favourable medium-term growth outlook and a small government debt burden compared with “BBB” category peers. On the other hand, Fitch underscores challenges face include a strong dependence on external financing, low government revenue, and lagging structural indicators such as governance indicators and GDP per capita.

Fitch expects Indonesia’s GDP growth is likely to remain resilient in the next few years, underpinned by a renewed public infrastructure push and reform agenda during the second 5-year term of President Joko Widodo. The government’s structural reforms efforts have the potential to lift economic growth and foreign direct investment over the medium-term, depending on details and implementation. Parliament is scheduled to discuss two “Omnibus Laws” in the next few months, which are likely to contain a number of long-awaited amendments to regulations related to taxation and the business environment.

From fiscal side, Indonesia’s government debt is low at a Fitch-estimated 30.1% of GDP in 2019. Fitch expects the debt/GDP ratio to rise only marginally in the next few years, assuming the government continues to adhere to a self-imposed deficit ceiling of 3% of GDP.

Inflationary pressures are likely to remain muted in the current growth environment. Inflation has been under control in recent years, staying within Bank Indonesia’s (BI) target range 1pp above or below 3.5%. From the external front, favorable market conditions have facilitated a further build-up of foreign-currency reserves to USD129 billion in December 2019. Fitch expects the current account deficit to remain at 2.7% of GDP in 2019 and 2020, and to slightly fall to 2.6% in 2021, with net FDI inflows covering more than half of the gap, leaving the remainder to be financed by portfolio inflows. Strong structural reform implementation and foreign companies’ perception of an improved level-playing field could help accelerate FDI inflows and strengthen Indonesia’s external finances.

Fitch considers the sovereign’s exposure to banking-sector risks as limited. Private credit represents only 36% of GDP and the banking sector’s capital-adequacy ratio remains strong, at 23.7% in November 2019. Foreign-currency loan exposure for Indonesia banks is equivalent to around 15% of total loans, although foreign-currency assets and liabilities are generally well-matched or hedged, and some liabilities relate to funding from banks’ foreign parents.

Fitch had previously affirmed Indonesia Sovereign Credit Rating at BBB/stable outlook (Investment Grade) on March 14, 2019.

Jakarta, 24th January 2020
COMMUNICATION DEPARTMENT

Onny Widjanarko
Executive Director

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