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RI retains credit rating amid promising growth, but revenue concerns persist
Credit rating agencies warn that a downgrade could be on the horizon if the government struggles to sustain economic growth or allows the fiscal deficit to widen by prioritizing political commitments over prudent financial management.
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Notably blue: South Jakarta's skyline is seen on a weekday afternoon on March 3, 2023. (JP/Deni Ghifari)
M
ajor credit rating agencies have maintained Indonesia’s sovereign rating at the same investment grade since before the pandemic but are watching policy decisions carefully to decide whether any future change would be upward or downward.
A significant increase in government revenue could pave the way for upgraded ratings, enabling the country to attract more foreign investment and reduce borrowing costs, but a downgrade could be on the horizon should the government allow the state budget deficit to widen by prioritizing political commitments over prudent financial management, the agencies say.
On Thursday, Moody’s Ratings reaffirmed Indonesia’s sovereign debt rating at “Baa2” with a stable outlook, a level it has kept in place for the archipelago since April 2018.
The credit rating agency cited strong domestic consumption and stable commodity exports as key drivers of economic growth, which is projected to hover around 5 percent this year and next. However, potential tariff increases from trade partners like the US could pose a risk to the outlook.
Moody’s indicated that an upgrade could be on the horizon should Indonesia be able to strengthen state revenue, deepen its financial markets or enhance the scale and competitiveness of its manufacturing and commodity sectors.
“[Moody’s affirmation] reflects the government’s hard work in maintaining economic and fiscal stability. We remain committed to strengthening Indonesia’s economic foundation and ensuring inclusive, sustainable growth,” Finance Minister Sri Mulyani Indrawati said in a statement on Wednesday.
Despite the affirming assessment, Moody’s warned that President Prabowo Subianto could face a dilemma between delivering on election promises and maintaining fiscal discipline, as quoted by Kompas.
