TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Fitch affirms RI’s debt rating, praises jobs law, tax law
The rating agency is more positive than the government about the fiscal deficit and expects GDP growth around 6 percent for years to come.
Change Size
F
itch Ratings has affirmed Indonesia's long-term foreign-currency issuer default rating (IDR) of BBB with a stable outlook and expects GDP growth of almost 7 percent next year.
In a rating decision announced on Tuesday, the agency noted the country’s high dependence on external financing, low state revenue and the fact that it lagged behind peers in terms of governance indicators and per-capita GDP.
The United States-based firm saw these shortcomings balanced out, however, by a “favorable medium-term growth outlook and a still low, but rising, government debt-to-GDP ratio”.
Fitch noted that economic activity in Indonesia was recovering gradually and saw potential for a swift recovery in mobility and for export commodity prices to remain high.
“We forecast growth to accelerate to 6.8 percent in 2022, with the main risks relating to the evolution of the pandemic. Thereafter, we expect growth to remain at around 6 percent over the next few years, as the negative output gap from the pandemic closes gradually,” the agency wrote in a press release.
Fitch expected a boost in growth from the Job Creation Law, which it said aimed to “alleviate longstanding barriers to investment”. The law drew significant criticism domestically before and after it was passed about a year ago.
Fitch also commended the Harmonized Tax Law passed last month, specifically its “revenue-enhancing measures”, including an upcoming hike in value-added tax (VAT), a voluntary disclosure program and a carbon tax, which “should help the government meet its ambitious deficit target of below 3 percent of GDP in 2023”.
Read also: Explainer: Key points from impending new tax law
Nevertheless, the agency noted, “Long-standing challenges to raising the revenue ratio more significantly remain in our view, including to expand the tax base and improve compliance.”
Taking into account the tax reforms, Fitch expected the fiscal deficit to fall to 4.5 percent in 2022, which is more optimistic than the 4.9 percent stated in the government’s budget plan. But the agency said that if more relief spending than expected was deemed necessary, the forecast could change.
Fitch noted higher foreign direct investment inflows, including into electrical vehicle production. This, along with “swap lines with other central banks, [strengthens] Indonesia's external resilience. Nevertheless, we believe Indonesia remains more vulnerable than many of its peers to shifts in investor sentiment toward emerging markets, given the high dependence on portfolio inflows and commodity exports, and external debt ratios that are above peer medians.”
