JAKARTA (TheInsiderStories) – International rating agency Standard and Poor’s (S&P) has affirmed Indonesia’s Sovereign Credit Rating at investment grade level, as announced on May 31.

In response to the statement, Bank Indonesia (BI) Governor Perry Warjiyo in an official statement stated the affirmation is reflects Indonesia’s strong economic fundamental and credible policy mix framework. He believed the affirmation further bolsters investors’ confidence on Indonesia’s economic prospect amidst the ongoing global uncertainty.

Warjiyo said, “In this regards, coordination among relevant authorities to implement the policy mix will be strengthened to maintain macroeconomic stability and support growth.”

S&P kept the Indonesia rating based on the key factors that support the decision are the government’s relatively low debt levels and its moderate fiscal performance and external indebtedness.

General government debt ratio to GDP over the next few years is projected to be stable, reflecting the relatively stable projected fiscal balance. Moreover, improved tax collections following the latest tax amnesty and higher energy prices should help government revenue.

On the external front, current account deficit is expected to shrink in the next few years reflecting steady global demand and higher commodity prices. At the same time, the rupiah flexibility together with prudential policy measures to manage the risks of private sector short-term external borrowing have supported the decline of the ratio of gross external financing needs to current account receipt (CAR).
Furthermore, the risk of a marked deterioration in the cost of external financing that Indonesia faces has diminished significantly. In addition, Indonesian policymaking has been effective in promoting sustainable public finances and balanced economic growth in recent years.
To support purchasing power and consumption, the government has implemented policy measures which include freezing fuel prices and electricity tariffs. These measures are likely to be temporary in nature and the reform momentum would pick up pace again.
BI is also viewed as an important institution in Indonesia’s ability to sustain economic growth and attenuate economic or financial shocks. S&P had previously raised Indonesia Sovereign Credit Rating to BBB-/Stable Outlook on May 19, 2017.

The S&P states that the projection of fiscal balance is also relatively stable. It said, increased tax collection as a result of tax amnesty and rising world oil prices are projected to improve state revenues.

Furthermore, the risk of deterioration in the external financing burden facing Indonesia has decreased significantly. In addition, S&P said, the formulation of Indonesian policy has been effective in supporting sustainable government finances and balanced economic growth.

To support purchasing power and consumption, the government is taking steps to curb rising oil and electricity prices. These efforts are assessed by the S&P is temporary and the momentum of reform will again strengthen.

Last week on the meeting of Financial System Stability Forum (FSSF), Finance Ministry, BI, Financial Services Authority and Deposit Insurance Agency said will strengthening coordination and implementing an optimal policy mix to maintain economic stability and ongoing development efforts.

In general, they said, national economic dynamics in Indonesia remain solid. The pressures on stability, particularly rupiah exchange rate stability, tend to originate more from tighter liquidity and a build-up of global risks as a corollary of policy change in the United States. Stronger coordination prioritizes short term stability while nurturing medium-term economic growth.

In the first quarter (Q1) of 2018, national economic growth stood at 5.06 percent. Low inflation was maintained in April 2018 at 3.41 percent and is predicted to remain within the inflation target of 3.5±1 percent in 2018.

Congruent with cyclical trends, the current account deficit (CAD) increased to 2.1 percent of GDP in the Q1 2018 but is narrower than the 2.61 percent of GDP recorded during the Taper Tantrum in the first quarter of 2013.

Furthermore, BI expects the CAD to be maintained well within the safe threshold of 3 percent of GDP in 2018. The position of official reserve assets is currently more than adequate to offset imports and government external debt servicing, as well as to anticipate a potential capital reversal of non-resident capital from Indonesia.

Meanwhile, state budget implementation is sound beyond expectations. At the end of April 2018, tax revenue had grown 14.9 percent, with Value Added Tax increasing by 14.1 percent and corporate income tax by 23.6 percent. Broad-based tax revenue growth is indicative of vibrant economic activity and a flourishing business community.

The state budget deficit stood at 0.37 percent of GDP and the primary balance recorded a surplus of Rp24.2 trillion (US$1,73 billion), thereby confirming stronger budget dynamics and maintained fiscal balance.

In the financial sector the Capital Adequacy Ratio (CAR) in the banking industry recorded at 22.38 percent, the RBC of the general insurance and life insurance industries recorded at 310 percent and 454 percent respectively, as well as an excess reserve in the banking industry standing at Rp618 trillion.

In terms of intermediation, as of April 2018, financial services sector performance was still improving. Growth of loans disbursed by the banking industry and financing receivables expanded at 8.94 percent year on year (YoY) and 6.36 percent (YoY) respectively, while deposit growth stood at 8.06 percent (YoY).

On the other hand, credit risk and market risk remain manageable, as corroborated by the gross non-performing loans ratio of 2.79 percent in the banking industry and non-performing financing ratio of 3.01 percent reported by finance companies.

Meanwhile, the deposit guarantee coverage of the Deposit Insurance Corporation  has reached 99.9 percent of customers and 52.15 percent in terms of value, demonstrating public confidence and trust in the national banking system.

Bambang Brodjonegoro, minister of national development planning added to keep Indonesia economy in good condition the country need to keep maintaining macroeconomic stability, monetary policy, fiscal policy as well as the policy to attract foreign investment.

He continued, according to many predictions, Indonesia will be in the top five economies by 2050. That means the country only behind China, United States and India.

In terms of population, Indonesia now are fourth in the world with 260 million. While gross domestic products (GDP) is in the class of US$1.000 billion, in a 15th rank in the world.

The government also has improved the investment climate. For example, the country ease of doing business rank jumped from 120 to 70. c growth higher than what we have right now.

Email: linda.silaen@theinsiderstories.com

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The Insider Stories Founder Linda Silaen has a solid, proven history, established over more than a decade as a journalist with a leading internasional news organization, of being the first with the biggest economic news stories in Indonesia. Specializing in corporate news, Linda is also a veteran of some of the biggest macroeconomic and general news stories as Indonesia rapidly transforms into a major market economy. One of the founders of the original blog from which this company developed, Linda’s knowledge of investors’ information communications and data us developed from unrivaled networking skills that make her a well-known name among CEOs, bankers, government officials and private equity investors both in Indonesia and other countries.

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