Fitch Ratings Maintain Indonesia’s Credit Rating at Outlook Stable BBB Position
Detiktoday.com – The debt rating agency Fitch maintains Indonesia’s debt rating (rating) at BBB position with a stable outlook on August 10, 2020.
In its report, Fitch stated that Indonesia’s stable rating was driven by good medium-term growth prospects and a low debt to Gross Domestic Product (GDP) ratio compared to peer countries in the BBB category.
On the other hand, Fitch believes that the Government of Indonesia needs to reduce dependence on external parties, increase state revenues, accelerate structural reforms, and increase GDP per capita.
Fitch appreciates the Government of Indonesia for responding quickly to the crisis with various assistance measures to support households and businesses, including Small and Medium Enterprises (SMEs). Fitch also considers the government to have taken some extraordinary temporary measures, including a three-year suspension of the 3% deficit ceiling of Gross Domestic Product (GDP) and direct central bank financing of the deficit. This policy is supported by a fiscal policy that is prudent in recent years so that Indonesia has room for steps to resolve the pandemic.
In supporting the fulfillment of APBN financing, Bank Indonesia (BI) will purchase Government Securities (SBN) on the primary market through non-competitive auctions and through a special private placement instrument intended for financing public goods. The design of a “burden sharing” scheme in which BI will bear part of the cost of additional debt issuance is also considered by Fitch to be able to answer higher spending needs. This burden sharing will help reduce the Government’s direct interest costs, and according to Fitch it will not provide inflationary pressure. Fitch believes that Indonesia’s disciplined stance on monetary policy in recent years gives confidence that the scheme will only be temporary in nature and that the scheme is also more due to an unusual pandemic situation.
Fitch’s move to maintain Indonesia’s debt rating at the BBB position with a stable outlook shows that the Government’s policy to overcome the Covid-19 pandemic has been on the right track so far.
The government policy contained in the fiscal stimulus has three objectives. First, improving health services in order to cope with the outbreak. Second, providing assistance to the affected small communities. Third, increase the resilience of the business world in the face of the Covid-19 outbreak. This policy is expected to help the Indonesian economy anticipate a recession, and optimize and maintain Indonesia’s economic stability.
