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[News] Moody Could Upgrade Indonesia’s Rating
Posted at: 13 February 2018

Another boost for Indonesia's economy, credit rating agency Moody's Investors Service signaled in a new research report that it could upgrade Indonesia's current sovereign Baa3 (positive outlook) credit rating provided it detects an improvement in several macro-economic indicators. In 2012 Moody's granted the investment grade status back to Indonesia. Meanwhile, exactly one year ago (in February 2017) it upgraded Indonesia's sovereign credit rating outlook from stable to positive.

There are several economic indicators and developments that can count on the highest attention of Moody's Investors Service. These matters are at the heart of the decision to raise Indonesia's credit rating.

Firstly, Indonesia should reduce its reliance on foreign debt. Based on the latest data from Indonesia's central bank (Bank Indonesia), the country's external debt amounted to USD $347.3 billion at the end of November 2017, up 9.1 percent year-on-year (y/y). Private sector external debt reached USD $170.6 billion, up 4.2 percent (y/y), while public sector external debt reached USD $176.6 billion, up 14.3% (y/y). A high amount of foreign debt can become a serious issue in times of rupiah weakness, for example another Fed Funds Rate hike may very well strengthen the position of the US dollar.

Key to overcome the Indonesian government's reliance on foreign debt is to boost domestic revenue streams. In this context an increase in tax revenue realization is very important. Currently, Indonesia still continues to under deliver in terms of tax revenue realization as tax compliance as well as tax monitoring in Southeast Asia's largest economy is very weak. Hence, the country's tax-to-GDP ratio is very weak as well.

(Source: Indonesia Investment)