Indonesia's Rating Rises BBB+, BI Governor: Strong International Confidence

JAKARTA - Bank Indonesia (BI) revealed that the rating agency Rating and Investment Information, Inc (R&I) on July 25, 2023 increased Indonesia's outlook to be positive from previously stable, and maintained the Ranking of the Republic of Indonesia at BBB + (two levels above the lowest level of Investment Grade).

It was stated that this decision was supported by strong economic performance and maintained economic resilience amid global economic uncertainty, inflation and a fiscal deficit that returned to the target faster than expected, maintained financial stability, and a downward trend in the government debt ratio.

Responding to this, the Governor of Bank Indonesia, Perry Warjiyo, stated that this positive score shows the strong confidence of international stakeholders in Indonesia's macroeconomic stability and medium-term economic prospects that are maintained, amidst increasing global economic uncertainty and financial markets.

"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 said in a press statement quoted on Tuesday, July 26.

According to Perry, the central bank will continue to pay close attention to developments in the global and domestic economy and finance, formulating and implementing the necessary steps.

"This effort was taken to ensure maintained macroeconomic and financial system stability, and continue to strengthen synergies with the Government to support the acceleration of economic transformation towards a more inclusive and sustainable economy," he said.

For information, R&I said that Indonesia's economic growth will remain solid in 2023, although slightly restrained in the second half. The government projects that GDP growth will be in the range of 5.0 percent to 5.3 percent in 2023.

Perry said, structural policies taken by the government related to improving the business environment, infrastructure development, and strengthening human resources are important factors in achieving medium-term growth targets.

"R&I estimates that Indonesia's economy will grow in the range of 5 percent for 2024 and in the following few years," he said.

This assumption is based on price stability, which will be maintained, supported by the discipline of monetary policy and strengthening synergy with the government, including through the national and regional inflation control teams.

From the external side, the transaction surplus will run in 2021 and 2022 reflecting improvements in terms of trade in line with rising commodity prices.

R&I projects that the current account will return to its deficit in the next few years but in a controlled range, thus supporting Indonesia's external resilience.

"From the fiscal side, the government's commitment to controlling the fiscal deficit is reflected in the achievement of the fiscal deficit target below 3 percent of GDP one year earlier," he said.

Perry added that R&I believes that in 2023 government revenues will remain strong because they are supported by tax reform policies, and government spending that remains under control according to the target.

"The government estimates that the fiscal deficit in 2023 will reach 2.3 percent of GDP, lower than the initial target of 2.8 percent of GDP, thus having an impact on the ratio of government debt to GDP which has decreased," added Perry.

To note, R&I previously maintained the Sovereign Credit Rating of the Republic of Indonesia at BBB + (two levels above the lowest level of Investment Grade) with a stable outlook on July 4, 2022.