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[News] Moody's Upgrades Indonesia's Sovereign Credit Rating
Posted at: 16 April 2018

Another good news for investing in Indonesia. Moody's Investors Services, one of the world's prestigious credit rating agencies, upgraded Indonesia's long-term, foreign currency-denominated debt rating to Baa2 (with a stable outlook), the second-lowest investment grade rating, on Friday (13/04). Moody's cited increasingly credible and effective fiscal and monetary policies as key reasons for the upgrade. The latest upgrade puts Indonesia on par with India and the Philippines.

Prudent and effective fiscal and monetary policies strengthen the macroeconomic environment of Indonesia. In combination with the build-up of financial buffers (reflected by Indonesia's foreign exchange reserves reaching record high territory) the country's resilience and capacity to respond to any international shocks has improved. Moody's also applauds Indonesia's ability to have kept the budget deficit below three percent of the nation's gross domestic product (GDP) since 2003.

Meanwhile, the central bank's flexible exchange rate system has made the rupiah's performance stable, while the central bank's improved coordination with central and regional governments has pushed Indonesian inflation to a comfortable level.

The rating upgrade should also make it easier for the Joko Widodo administration to find funds for its ambitious infrastructure development program. As the private sector has been hesitant to invest in infrastructure development, Indonesia heavily relies on the state-owned construction companies to finance this program. 

This causes some concern about the dent that these companies need to take on. Therefore, Moody's stated that the contingent liability risks of the state-owned enterprises are likely to increase. On the other hand, Moody's added that they do not pose a significant risk to Indonesia's fiscal strength in the next couple of years.

One month ago, Japan-based credit rating Company Rating and Investment Information Inc. (R&I) had already upgraded Indonesia's sovereign credit rating from BBB- (positive outlook) to BBB (stable outlook). Meanwhile in December 2017, Fitch Ratings had upgraded Indonesia's long-term foreign- and local-currency issuer default ratings to BBB (stable outlook), from BBB- previously.

(Source: Indonesia Investment)