Fitch Affirms Indonesia’s Sovereign Credit rating BBB

Fitch Ratings Reaffirmed Indonesia' Rating on Investment Grade Level

JAKARTA (TheInsiderStories) – Fitch Ratings has affirmed Indonesia’ Sovereign Credit Rating at investment grade level (BBB) with outlook stable, as announced on Sept. 2.

The key factors that support the decision are a low government debt burden and a favorable gross domestic product (GDP) growth outlook amidst external challenges, including a strong dependence on external sources of financing, and several structural indicators that remain below rating peers.

Bank Indonesia’s decision to hike its policy rate and intervene in the foreign exchange market as a response to external pressures on emerging markets indicates a strong resolve to ensure stability.

In this regard, the authorities focus on macroeconomic stability was a key driver for Fitch’s upgrade of Indonesia’s sovereign credit rating in December 2017.

In particular, Indonesia’s external finances are stronger than during the 2013 Taper Tantrum, resulting from a disciplined monetary policy stance and macro-prudential measures that have helped curb a sharp rise in corporate external debt. From the government side, the fiscal consolidation will improve the public debt dynamics.

Furthermore, Fitch does not expect the authorities to change their focus on stability and no indications of major changes in economic policies in the run-up to the presidential elections scheduled on April 17, 2019. Fitch also acknowledged that Indonesia’s GDP growth and general-government debt burden continue to compare favorably with peers.

Indonesia’s real GDP growth is projected to rise marginally to 5.2 percent in 2019 and 5.3 percent in 2020, supported by the continued public infrastructure spending push. In addition, the ratio of Indonesia’s general government debt to GDP already compares favorably with peers.

The sovereign’s exposure to banking-sector risks is limited with banking sector’s capital adequacy ratio remains strong. Direct foreign-currency assets and liabilities are also generally well-matched or hedged. Furthermore, some of those liabilities are related to funding from banks’ foreign parents.

In response to the statement, Governor of BI, Perry Warjiyo stated that “Fitch’s affirmation on Indonesia’s rating at BBB/stable outlook reflects the confidence of rating agency on Indonesia’s economy.”

“Strong commitment in maintaining macroeconomic stability and strengthening economic resilience amidst ongoing global uncertainty demonstrates the credibility of Indonesian authorities’ policy. Going forward, strong coordination among authorities in implementing the policy mix, including efforts to reduce current account deficit, will be strengthened to maintain macroeconomic stability and to preserve economic growth momentum,” he added.

Fitch had previously raised Indonesia Sovereign Credit Rating to BBB/stable outlook on Dec. 20, 2017. Indonesia’s debt rating by Fitch included the investment grade category since 2011 and rose to the rank of BBB in December 2017.

Indonesia Debt Rating Positions

Rating Agencies Debt rating Outlook
Fitch BBB Stable
Moody’s Baa2 Stable
S & P BBB- Stable
Japan Credit Rating Agency BBB Stable
Rating & Investment BBB Stable

Source: Fitch Rating