JAKARTA (TheInsiderStories) – Indonesian government plans to releases senior unsecured US Dollar notes and Eurobond and get Baa2 rating from Moody’s Investors Service, the agency reported today. The global bond under the government’ existing US$10 billion shelf program and have maturities up to 50 years.
The notes will rank pari passu with all of the government’ current and future senior unsecured external debt. The proceeds of the notes are intended for general budgetary purposes, including to partially fund its COVID-19 relief and recovery efforts. The rating mirrors the government’ long-term issuer rating of Baa2 with a stable outlook.
Indonesia’ Baa2 rating is underpinned by policy emphasis on macroeconomic stability that increases its resilience to shocks. The sovereign’ credit profile is supported by narrow fiscal deficits and low government debt ratios. The large size of its economy and healthy and stable growth prospects act as credit supports. Credit challenges include low revenue mobilization, and a reliance on external funding.
Reported daily coronavirus cases continued to climb until recently and are yet to sustainability plateau, triggering closures and lockdowns across the archipelago and dealing a severe blow to the tourism industry, which will sharply dent the country’s growth. While Indonesia’ current account and budget deficits are low, any prolonged risk aversion will weigh on already weak debt affordability and test external buffers.
Sizeable non-resident investment in Indonesia exposes the country to swings in capital inflows, which are amplified during episodes of global financial market stress. This has economy-wide effects, particularly for the fiscal and external accounts, but also for local businesses. Weaker corporate credit profiles due to higher debt servicing and roll-over costs hurt bank asset quality.
The stable outlook reflects balanced risks at Baa2. It incorporates downside risks from political challenges to further implementation of broad economic, fiscal and regulatory reforms. Because they seek to address entrenched constraints and go through various institutional hurdles Moody’s expect effective reforms to proceed relatively slowly, with potential delays to occur.
President Joko Widodo administration has set the 2021 State Budget deficit around 5.5 percent of gross domestic products (GDP) to cover the impact of the COVID-19 in Indonesia. The deficit widens then initial planned around 5.2 percent of GDP and lower than this year’ budget deficit around 6.34 percent of the GDP.
The widening of the deficit is carried out by taking into account the need for state spending to deal with health issues and to rebuild the economy amid the declining state income. The government prepared health budget Rp169.7 trillion or equivalent to 6.2 percent of the GDP, geared towards an increase in and equal distribution of supply as well as facilitation for the procurement of vaccine.
The national economic recovery will be carried along with the reform in various sectors. The policy of deficit relaxation that exceeds 3 percent of GDP in 2021, he adds, is still necessary by still maintaining fiscal prudence, credibility, and sustainability. The 2021 State Budget bill is drawn up to speeding up national economic recovery due to the COVID-19 and encouraging structural reform to increase productivity, innovation, and economic competitiveness.
It also speeding up economic transformation towards digital era and capitalizing and anticipating demographic changes. In 2021, the government set the macroeconomic assumptions as follows, the economic growth 4.5 to 5.5 percent, inflation at 3 percent, Indonesian Rupiah 14,600 against the US Dollar, 10-year government securities interest rate at 7.29 percent, Indonesian Crude Price US$45 per barrel, Oil and gas lifting is estimated to reach an equivalent of 705 thousand barrels and 1 million thousand barrels of oil per day, respectively.
Budget deficit of 2021 will be financed by making of secured financing sources that are prudently managed. The deficit financing, said Widodo, will be carried out through cooperation with monetary authority, while upholding the principles of fiscal discipline and monetary policy discipline as well as maintaining the integrity, credibility, and market trust of the government bond.
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