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
Information about Bank Indonesia
Tel. 021-131, Email: bicara@bi.go.id
