Indonesian government raises US$4.3 billion from the first "pandemic bond" issuance in Asia to fund the 2020 State Budget deficit and the COVID-19 relief, said finance minister today - Photo by the Ministry Office

JAKARTA (TheInsiderStories) – Moody’s Investors Service (“Moody’s”) has assigned Baa2 ratings to the proposed senior unsecured yen-denominated notes to be issued by the Government of Indonesia (Baa2 stable). The six planned drawdowns have maturities ranging from three to 20 years.

According to the terms and conditions available to Moody’s, the notes to be issued under the government’ samurai shelf program will constitute direct, unconditional and unsecured obligations of the Government of Indonesia (the issuer), and will rank pari passu among themselves and at least pari passu in right of payment with all other present and future unsecured obligations of the government.

The proceeds of the notes to be issued under the programme are intended to finance the budget deficit or for general financing purposes. The ratings mirror the Government of Indonesia’s 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.

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, we expect effective reforms to proceed relatively slowly, with potential delays or reversals to occur. The stable outlook also takes into account upside risks from a potential improvement in competitiveness as a result of effective reform implementation,” says Moody’s.

It said, the stable outlook indicates that rating changes are unlikely in the foreseeable future.Over time, indications that fiscal policy measures can durably and significantly raise government revenue would put upward pressure on the rating.

Higher revenue would enhance fiscal flexibility and provide more
direct financial means for the government to address large social and physical infrastructure spending needs.

An upgrade would also result from further progress towards achieving stronger growth potential, commensurate with the country’s population growth and income levels, including through a deepening of financial markets and improved competitiveness. A reduction in external vulnerabilities and improvements in institutional strength would also add upward pressures.

This assessment would be supported by a reduction in
the government’ reliance on external debt, or tangible evidence that reforms foster investment, competitiveness or sustained increases in revenues.

Downward pressure would arise if evidence indicates that the
strengthening of Indonesia’ policy framework and institutions stalls or reverses. Moody’s concluded that the prospects of medium-term
broadening of the revenue base are limited, indicating limitations to
policy effectiveness and posing continued constraints to economic growth.

Then, SOEs’ financial strength materially worsened pointing to a rising likelihood for material contingent liabilities to crystallize on the
government’ balance sheet.

by Linda Silaen, Email: