Central Bank Positive Response S&P Maintains Indonesia's Debt Rating Stable BBB

JAKARTA The Standard and Poor (S&P) rating agency maintains the Sovereign Credit Rating of the Republic of Indonesia at BBB with a stable outlook on July 4, 2023.

This decision considers the prospect of solid economic growth, a good track record of policy, and fiscal consolidation that is faster than the initial target.

On the other hand, stable outlook reflects S&P's confidence in Indonesia's economic recovery for the next two years, which will support fiscal performance and debt stabilization.

Responding to this, the Governor of Bank Indonesia (BI) Perry Warjiyo said Indonesia's rating affirmation showed strong confidence in international stakeholders in macroeconomic stability and medium-term economic prospects.

"This is a separate achievement amid an increase in global risks stemming from geopolitical tension and a slowdown in the global economy," he said in a written statement on Wednesday, July 5.

According to Perry, this international trust is supported by the credibility of policies that are high and the synergy of the strong policy mix between the government and Bank Indonesia.

He emphasized that Bank Indonesia will continue to pay close attention to developments in the global and domestic economy and finance, formulating and implementing the necessary steps to ensure maintained macroeconomic and financial system stability.

"This includes further adjustment of policy stance, and continuing to strengthen synergy with the government to support the achievement of sustainable economic growth," he said.

Meanwhile, the S&P is of the view that the reduction in inflationary pressures accompanied by an increase in government spending ahead of the election is expected to encourage increased private consumption in the second half of 2023.

This will support Indonesia's economic performance amid the challenges of slowing global demand, so that the Indonesian economy in 2023 is expected to grow by 4.8 percent.

From an external perspective, S&P views that improvement in the performance of Indonesia's external sector is expected to be able to withstand the impact of the slowdown in commodity prices. The implementation of downstream policies and increasing processing capacity in the mining sector in order to increase the added value of mining products is considered to be able to help increase export revenues.

In terms of fiscal, the global institution views that the faster consolidation of the APBN has an impact on reducing Indonesia's fiscal deficit to below 3 percent of GDP one year ahead of the target. The fiscal deficit was recorded at 2.4 percent of GDP in 2022, much lower than 2021 which reached 4.7 percent.

"However, it is necessary to pay attention to that the still limited government revenue base remains a challenge for the development of Indonesia's rating going forward," he said.