Japan Credit Rating Agency (JCR) has raised Indonesia’s sovereign debt rating from BBB with a positive outlook to BBB+ with a stable outlook.
The rating mainly reflects the country’s solid domestic consumption-led economic growth, restrained budget deficit and public debt, as well as resilience to external shocks supported by a flexible exchange rate, credible monetary policies and accumulation of foreign exchange reserves, the agency wrote in a statement on Friday.
JCR also lauded President Joko “Jokowi” Widodo’s administration for continuing reform efforts that include reform on fiscal expenditure, curtailment of the budget deficit by restraining fuel subsidies and rapid infrastructure development that had exceeded the agency’s expectations.
Given the administration’s continuous efforts to carry out reform through its plan to issue an omnibus bill aimed at boosting foreign direct investment in a bid to reduce its current account deficit, along with its reinforced political base, with the administration’s largest opposition party having joined the coalition, JCR decided to raise the rating.
“[JCR] also changed the outlook to stable and upgraded the country’s ceiling for Indonesia by one notch to A-,” it said in the statement obtained by The Jakarta Post on Friday.
The upgrade indicates JCR holds a more optimistic view on Indonesia than credit rating agency Fitch Ratings, which earlier this week maintained Indonesia’s long-term foreign and local currency issuer default rating at BBB with a stable outlook.
Fitch saw Indonesia as continuing to exhibit some structural weaknesses relative to its peers and as less developed on a number of metrics than many of its peers of the same BBB rank.
Although Indonesia’s budget deficit widened to 2.2 percent of gross domestic product (GDP) in 2019, JCR is upbeat that the government could cut its fiscal deficit to 1.76 percent of GDP this year and hold central government debt to less than 30 percent of GDP.
The optimism is based on the fact that the administration is poised to continue to secure fiscal resources for infrastructure and human capital development expenditures through curtailment of fuel subsidies in a bid to ensure fiscal consolidation during its second term.
Finance Ministry spokesperson Nufransa Wira Sakti said the ratings upgrade was JCR’s recognition of Indonesia’s economic resilience amid uncertain global economic conditions.
“The government is also utilizing this ratings upgrade from JCR to boost both foreign direct and portfolio investments, as well as to enter the Japanese bond market,” he said in a statement.