JAKARTA (TheInsiderStories) - The Standard and Poor’s (S&P) maintained Indonesian sovereign credit rating at BBB with outlook negative due to the strong prospects for economic growth and the track record of prudent policies that the authorities have pursued. This complements the rating assessment by Rating and Investment Information Inc., at BBB+ with a stable outlook and Fitch also at BBB with stable outlook.
“On the other hand, fiscal risks and external risks related to the Covid-19 pandemic need attention,” wrote the report released on Thursday (04/22).
S&P assessed that Indonesia was able to maintain stable economic conditions amid pressure from external and fiscal conditions due to the COVID-19 outbreak. The assessment emphasizes solid economic growth prospects and a track record of sound fiscal discipline management taken by the government in dealing with the pandemic.
S&P estimates that Indonesian economy will recover and grow by 4.5 percent in 2021 and 5.4 percent in 2022. The agency underlined that the pace of the country’ economic recovery will depend on the speed and effectiveness of the vaccination program. Global pandemic control policies have also affected the economic recovery, particularly in relation to the recovery of the export-oriented sector and tourism.
The resilience of the Indonesian economy to the external sector is considered to be maintained through policies adopted by the government and Bank Indonesia. In the medium term, S&P is optimistic that Indonesia’ economic growth rate will be above the average for peer countries. The potential is driven by structural reform policies through the passage of the Job Creation Law which aims to improve the business climate, simplify the bureaucracy, and boost investment performance.
In addition, various facilities in the field of taxation as well as flexibility in labor policies in the Job Creation Law are considered to be able to encourage job creation, especially in the manufacturing sector. The government’s decision to pass the Job Creation Law in the midst of a crisis caused by the pandemic is a form of breakthrough to strengthen the economy and prove the commitment of policy makers.
On the other hand, S&P notes on the challenges facing Indonesia from the revenues side, especially to return the fiscal deficit ratio to 3 percent in 2023. Its projected that fiscal consolidation will progress gradually, the fiscal deficit will narrow in 2021 to 5.7 percent and 4.2 percent in 2022. The government is expected to maintain its commitment to restore fiscal discipline even though the uncertainty due to the pandemic is still very high.
From the monetary side, S&P noted that the role of Bank Indonesia was able to ease economic and financial shocks. Moreover, the central bank’ move to buy government securities in the primary market as the last resort.
This central bank’ helping hand is considered capable of assisting the government in managing funding needs, even reducing interest expenses when the financial market is under pressure. This step is also considered to have minimal impact on inflation and bond yields.
Written by Editorial Staff, Email: theinsiderstories@gmail.com
