Indonesia won a sovereign rating upgrade from S&P Global Ratings for its “strong economic growth prospects” and prudent fiscal policy, brightened by the re-election of President Joko Widodo. The nation’s currency, stocks and bonds rallied.
The rating was increased to BBB from BBB- and put on a stable outlook, S&P said in a statement on Friday. The long-term rating may be raised again if Indonesia’s external settings improve materially from their current levels, or if its fiscal settings improve over the next two years, it said.
We raised the ratings to reflect Indonesia’s strong economic growth prospects and supportive policy dynamics, which we expect to remain following the re-election of President Joko Widodo recently,” S&P said. “The sovereign ratings on Indonesia continue to be supported by the government’s relatively low debt and its moderate fiscal performance.”
The rating upgrade will be a shot in the arm for Widodo, known as Jokowi, who’s pledged to bolster growth and expand an ambitious infrastructure drive that’s estimated to cost more than $400 billion in his second term. It puts Indonesia at the same level as Hungary and Uruguay, but a notch below the Philippines, which won an upgrade from S&P last month.
Investors cheered the surprise rating upgrade with the rupiah jumping as much as 1% against the dollar, its biggest gain since Jan. 31. While the yield on benchmark 10-year government bonds fell 9 basis points to 7.96%, the benchmark stock index surged 1.7% to close at its highest level since May 10.
Indonesia won investment grade rating from all the top rating companies for the first time in two decades in Jokowi’s first term as his government reined in the country’s fiscal deficit and accelerated efforts to increase its tax-to-GDP ratio even as it raised government spending to a record to support growth.
The rating upgrade will be a boost for Indonesia’s efforts to attract much-needed foreign investment. (source: Bloomberg)