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Moody’s raises Indonesia debt rating outlook to ‘positive’
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A ship discharges cargo at Bitung Cargo Port in North Sulawesi in October 2016. The government wants to turn the port into an international hub as part of its infrastructure development efforts, which credit rating agency Moody's Investors Service lauds in its recent upgrade of Indonesia's rating outlook. (Antara/Adwit B. Pramono)
M
oody's Investors Service has revised the outlook on its ratings of Indonesian government debt to “positive” from “stable.”
In a statement issued on Wednesday, the credit rating agency also said it had affirmed Indonesia's Baa3 issuer rating, Baa3 senior unsecured bond ratings, and (P)Baa3 senior unsecured medium term note (MTN) program rating.
It attributed the improved outlook mainly to “emerging signs of a reduction in structural constraints on Indonesia's rating, including its level of external vulnerability and the strength of its institutions.”
(Read also: Indonesian economic growth accelerates to 5.02%)
It considers Indonesia's vulnerability to external shocks to be declining and expects the diminishing vulnerability to continue as a result of measures fostering a narrower current account deficit, higher foreign exchange reserves and a slower rise in private sector external debt.
At the same time, it lauded Indonesia’s improving policy effectiveness, as shown by the “lengthening track record of macroeconomic stability and fiscal discipline, together with its measured but ongoing progress on structural economic, fiscal and regulatory reforms.”
Indonesia saw its economy grow by 5.02 percent last year. Moody’s expects GDP growth in Indonesia to remain higher than in most Baa-rated peers.
According to Moody’s, a rating upgrade would result from further progress in sustainably reducing external vulnerabilities, while at the same time demonstrating enhanced institutional strength.
Meanwhile, a downgrade is unlikely, given the positive outlook. “We could revise Indonesia's rating outlook to stable, if evidence built up that the nascent institutional strengthening is on hold, or reversing, particularly if associated with an unraveling of current macroeconomic and structural reform efforts.” (tas)
