JAKARTA (TheInsiderStories) – Indonesia’ (Baa2 stable) economic growth will slow to its lowest rate since the 1998 Asian financial crisis, with prolonged risk aversion likely to weigh on already weak debt affordability and test external buffers, says Moody’s Investors Service says in a new report.
“Although growth in the first quarter will only slow modestly, partial shutdowns across Jakarta and other parts of Java – the epicenters of Indonesia’s economic activity – indicate that the deceleration will be relatively rapid,,” says Anushka Shah, a Moody’s analyst in a written statement today (04/03).
Moody’s now expects Indonesia’ real GDP growth to slow to 3.0 percent in 2020 before recovering to 4.3 percent in 2021.
“Meanwhile the 20 percent drop in the Rupiah against the dollar since early February and the spike in bond yields will have economy-wide effects, particularly if prolonged,” adds Shah.
Size-able non-resident investment in Indonesia exposes the country to swings in capital inflows, which are then amplified during episodes of global financial market stress. As in the past, this will weigh on debt affordability and external accounts, but to a magnified extent, and also have implications for corporate health and consequently bank asset quality.
Indonesia’ response to contain the coronavirus outbreak has lagged some other countries in the region, but its policies to limit the related economic and financial shock have been introduced in a relatively coordinated manner.
Nevertheless, and similar to other sovereigns, Moody’s expects the government measures will at best buffer the impact of the shock, rather than reverse or resolve it.
Earlier, finance minister, Sri Mulyani Indrawati, sees Indonesia’ economic growth could touches the negative level at minus 0.4 percent to 2.3 percent in this year. Initially the government targeting the economic growth could reached 5.3 percent in this year.
The reasoned, household consumption is estimating only 1.6 – 3.2 percent, investment could drops from 6 percent to negative growth, and exports are also expected to be negative because imports have increased.
On March 24, the minister has said, the government considered to revises the 2020 State Budget along with strong impact from COVID-19 impacts. She said, followed the current condition, most of major macro assumption will changes, including the possibility to widens the budget deficit.
President Joko Widodo has signed the presidential decree number 1 of 2020 to accommodated the plans and soon will send the stated budget revision to parliament soon.
“The 2020 state budget will surely undergo a major change, especially macro assumption. What we discussed with the council was to prepare rules in situations of urgency. That is why the government can propose regulations to replace the 2020 State Budget law,” said Indrawati.
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