World Rating Agency Maintains Indonesia's Investment Worth Status, Here's BI's Response

JAKARTA - The international debt rating agency Fitch Ratings has reiterated that it has maintained Indonesia's Sovereign Credit Rating at BBB or investment grade with a stable outlook.

In his minutes, Fitch stated that the medium-term prospects for Indonesia's economic growth were considered good and the government debt-to-GDP ratio was low. However, there are still a number of challenges that need to be addressed, namely an increasing ratio of external financing, low revenues, and several structural indicators such as GDP per capita and governance which are relatively lower than other countries at the same rank.

In response to this, Bank Indonesia (BI) responded to the affirmation of the rating on the BBB rating with a stable outlook indicating that Indonesia tends to be more prepared to face the still high global economic uncertainty.

BI Governor Perry Warjiyo said there was still a risk of stagflation as global interest rates rose, and protectionism policies spread.

"Bank Indonesia will continue to strengthen the policy mix with the government to ensure macroeconomic stability and financial stability are maintained," he said in a written statement on Wednesday, June 29.

According to Perry, Fitch sees the risk of increasing pressure although he believes that inflation will still be maintained within the target range of 4 percent.

"In the medium term, economic growth is estimated to reach 5.8 percent in 2024, supported by the positive impact of the implementation of the Job Creation Law on increasing investment, as well as commitments to continue infrastructure development," he said.

For information, Fitch sees that the government's commitment to reduce the fiscal deficit to below 3 percent in 2023 will be achieved.

Then, in the midst of rising global commodity prices, the government has allocated a higher subsidy budget to maintain people's purchasing power. However, the increase in subsidies was accompanied by an increase in revenues supported by high commodity prices.

With this development, Fitch expects government debt to gradually decline from the level of 44.2 percent of GDP in 2022. This level of debt is much lower than other countries at the same rating (55.9 percent of GDP).

In addition, Indonesia's dependence on external financing is also lower, as indicated by the declining ownership of foreign investors in rupiah-denominated government securities.

Bank Indonesia's support in financing the fiscal deficit through the purchase of government securities is seen as being able to help manage interest expense.

"It should be emphasized that this support will end in 2022, so that it does not pose a risk to the credibility of monetary policy which in turn will affect investors' positive perceptions," concluded BI Governor Perry Warjiyo.