The credit rating agency Standard & Poor's Global Ratings (S&P) has maintained Indonesia' credit rating at the BBB with outlook negative from stable, it said on Friday (04/17) - Photo by DBS

JAKARTA (TheInsiderStories) – The credit rating agency Standard & Poor’s Global Ratings (S&P) has maintained Indonesia’ credit rating at the BBB with outlook negative from stable, it said on Friday (04/17). Its reflects the prospects for Indonesia’ strong economic growth and government policies that are adaptive and responsive to changing conditions.

The agency said, the policy is able to maintain economic stability and support efforts to tackle health problems due to the current pandemic. While, the policy resulted in an increase in the burden of the State Budget as a result of the increased need for financing through debt and increasing the debt burden.

As is known, in the effort to deal with the COVID-19, the government and related authorities have taken extraordinary actions quickly. The country has enacted Government Regulation in Lieu of Law Number 1 of 2020 concerning State Financial Policy and Financial System Stability for Corona Pandemic Management in an effort to maintain accountability and provide a legal basis for efforts to overcome COVID-19.

This law was followed up by adopting a policy of widening the budget deficit limit in anticipation of an increase in the expenditure budget in handling the impact of the virus. In addition, the country is also saving ministries and institutions spending, refocusing the budget while providing further stimulus in the form of taxation facilities, additional spending, and financing for handling the epidemic and preventing economic and financial crises.

On the monetary side, in supporting the implementation of the regulation, Bank Indonesia (BI) also take extraordinary measures, one of which is by buying state bond on the primary market by functioning as a backstop or last resort to help the Government finance the handling of the impact of COVID-19 , in the event that the market mechanism is not fulfilled.

This was stated in the Joint Decree between the government and BI Number 190 /KMK.08 2020 and Number 22/4 / EP.GBI/2020 dated April 16, 2020, concerning the Scheme and Mechanism of Coordination of Purchasing Government Securities and/or Government Sharia Securities in the Primary Market to Maintain Sustainability in Management of State Finances as the basis for the implementation of Government’s fiscal prudence .

The steps taken by the both parties are in line with steps in developed countries that also publish significant amounts of stimulus packages and monetary policies and concrete breakthrough schemes as an effort to reduce and mitigate the impact of the pandemic.

In response to the statement, governor of BI, Perry Warjiyo stated, “This negative outlook is believed not to be a reflection of fundamental economic problems, but rather triggered by S&P’ concern over the risk of worsening of external and fiscal condition due to the temporary pandemic”.

This conviction is based on the fact that, up to sometime before COVID-19 expanded throughout the world, investor and international rating agencies’ confidence on the prospects and resilience of Indonesia’s economy were still very high.

Until the first quarter of 2020, the confidence of most rating agencies in Indonesia remained strong, some even improved. Fitch in January 2020 and Moody’s Rating in February 2020 decided to maintain Indonesia’ rating at BBB with stable outlook and Baa2 at stable outlook, respectively.

JCRA and R&I in January 2020 and March 2020, respectively alos raised the country rating to BBB+ with a stable outlook.

“The lingering economic and financial uncertainty is a global phenomenon and Indonesia is one of many countries that have taken policy responses in the area of fiscal, monetary and financial to mitigate the negative impact of the spread of COVID-19 to macroeconomic and financial stability,” he noted.

He believes that the various policy steps taken by the authorities will be able to restore Indonesia’ economic trajectory, in terms of growth, external, and fiscal towards a more sustainable level in the not too distant future.

In line with the central bank’ assessment, S&P projects Indonesia’ economic growth to fall to 1.8 percent this year as a result of the COVID-19, before rebounding strongly over the next one to two years. The decision of the government to introduce bold fiscal measures should help to prevent long-lasting damage to the economy.

On the fiscal front, wider fiscal deficit will increase government’ debt burden over the next few years. However, S&P understands that this wider deficit is an implication of extraordinary measures taken by the government in response to a highly unpredictable, exogenous shock.

These strong fiscal support is warranted to manage the evolving public health crisis in Indonesia from the spread of COVID-19, and to mitigate the impact both transitory and structural to the Indonesian economy.

Edited by Staff Editor, Email: theinsiderstories@gmail.com