Moody's Investors Service sees Indonesian economic growth will ended at 3.9 percent of gross domestic products by the end of this year - Photo by Finance Ministry Office

JAKARTA (TheInsiderStories) – Moody’s Investors Service sees Indonesian economic growth will ended at 3.9 percent of gross domestic products (GDP) in this year, said the agency in a new report. But, the agency still put Baa2 (stable outlook) rating to the Southeast Asia largest economy’ as key growth drivers are under significant strain in 2020.

“While growth should rebound next year, a halt to reforms in state-owned enterprises, the corporate sector, infrastructure and human capital development, as well a prolonged weakness in commodity prices present downside risks to a sustained growth recovery,” said Anushka Shah, an analyst from Moody’s on Tuesday (09/08).

The extent of fiscal erosion is intrinsically tied to the growth recovery. Under the agency base case, Indonesia’ fiscal deficit and debt burden will both rise but remain in line with the Baa-median because of its stronger starting points and the fact that its budgetary deterioration has been less than that of its rating peers, she adds.

She continued, “But a slower recovery presents risks to these assumptions and would strain the government’s debt affordability, which was already weak pre-coronavirus.”

That said, the country’ decade-long predictable and disciplined policies have resulted in a low budget deficit and debt burden, affording it with some fiscal space.

“As Indonesia dips into its monetary and fiscal buffers, how it uses accumulated institutional credibility and manages a reversion to pre-coronavirus buffer levels will determine the credit implications,” adds Shah.

Earlier, Moodys’ rated, 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 the2020 State Budget law,” said Indrawati.

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