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Moody’s, Fitch highlight Indonesia’s low revenue as risk for debt rating
The credit rating agencies expect the recently passed Harmonized Tax Law to help with fiscal consolidation by 2023, but not to significantly raise state revenue.
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Rolled euro bills are placed on US dollar bills in this illustration taken May 26, 2020. (Reuters/Dado Ruvic)
M
oody’s Investor Service and Fitch Ratings have underlined low state revenue as one of the key risks for Indonesia’s debt rating, a stance that may affect the government’s ability to secure fresh financing down the line.
Anushka Shah, vice president and senior analyst of sovereign risk group Moody's Investors Service Singapore, said on Wednesday that the low state revenue had dragged down Indonesia’s debt affordability – the ratio of interest payments to revenue – which indicates a country’s ability to service debt.
World Bank data show that Indonesia’s debt interest to revenue ratio stood at 14 percent in 2019, almost triple the world average at 5.7 percent in that same year.
"That acts as a major, major constraint on credit quality and a second consideration is how wider deficits are going to be funded,” Shah said during a virtual media conference.
Moody’s currently assigns a Baa2 rating with stable outlook for Indonesia.
Fitch wrote on Nov. 22 that Indonesia’s low revenue and high dependence on external financing had made it more challenging to fund higher deficits. The rating agency reaffirmed Indonesia’s long-term foreign-currency issuer default rating (IDR) of BBB with a stable outlook
Read also: Fitch affirms Indonesia’s debt rating, praises jobs law, tax law
