Indonesia’s economy is lauded for its resilience and growth amidst global economic uncertainties.
The Rating and Investment Information Inc (R&I), a rating agency, has reaffirmed the Sovereign Credit Rating of the Republic of Indonesia at BBB+ (Investment Grade) with a stable outlook. This decision reflects Indonesia’s economic resilience amid global uncertainties, rapid fiscal consolidation, supported by solid income growth and well-calibrated policies, as well as steady economic growth and external conditions.
As reported by the Ministry of Finance, Indonesia’s change in outlook to positive is based on several key factors indicating the country’s economic stability and promising growth prospects. Notably, Indonesia has achieved price stability, with inflation levels remaining within the central bank’s target for 2023.
This accomplishment is attributed to the collaborative efforts of the government and central bank in managing food price volatility. R&I believes that price stability will continue to be maintained in the future.
Volatility is a statistical measure used to indicate the spread of yield securities or specific market indices. Generally, higher volatility indicates a greater risk associated with a product or investment asset.
Furthermore, the Indonesian government has made significant progress in addressing fiscal challenges. In 2022, government revenues saw significant growth driven by commodity price increases and the positive effects of tax reforms.
Indonesia’s government has successfully managed its fiscal deficit, currently below 3% of Gross Domestic Product (GDP). The fiscal deficit for 2022 notably decreased to 2.4%, and it is projected to remain low, sustaining Indonesia’s external stability.
This reduction in the fiscal deficit has positively impacted the government’s debt burden and interest payments. According to the Ministry of Finance, Indonesia’s economic growth has been impressive, with robust GDP growth reaching 5.3% in 2022.
Factors contributing to this growth include increased exports due to higher natural resource prices, as well as recovery in private consumption and investment. Although economic growth is expected to slow in the second half of 2023 due to weakened external demand and cautious investor sentiment ahead of the next presidential election, R&I projects that Indonesia’s real GDP growth will remain stable at around 5% starting in 2024.
Furthermore, R&I states that the credit rating could be upgraded if the prepared economic policy packages, including reforms in labor and financial sectors, successfully enhance domestic industry value and competitiveness. Additionally, the continuation of such policies under the new government and maintaining economic stability are vital factors in the potential credit rating improvement.
Meanwhile, the Indonesian government remains committed to maintaining economic stability amidst global economic uncertainties. In addressing this uncertain situation, the government will continue to implement responsive, cautious, and sustainable fiscal policies aimed at achieving public welfare and economic stability.
Regarding this R&I decision, Perry Warjiyo, the Governor of Bank Indonesia, stated that the improved outlook for Indonesia demonstrates strong international stakeholders’ confidence in maintaining macroeconomic stability and Indonesia’s mid-term economic prospects amidst global economic uncertainty and heightened financial markets.
According to Perry Warjiyo, this international world confidence is supported by high policy credibility and strong policy synergy between the government and Bank Indonesia. Hence, Bank Indonesia will continue to monitor global and domestic economic and financial developments, formulate and implement necessary measures to ensure macroeconomic and financial stability, and further strengthen synergies with the government to support accelerated economic transformation towards a more inclusive and sustainable economy.
R&I projects Indonesia’s economic growth to remain solid in 2023, with a slight moderation in the second half. The government projects that GDP growth will range from 5.0% to 5.3% in 2023. The government’s structural policies related to business environment improvement, infrastructure development, and human resources strengthening play a crucial role in achieving medium-term growth targets.
R&I forecasts that Indonesia’s economy will continue to grow at around 5% for 2024 and the following years. Price stability will be maintained through disciplined monetary policy and strengthened synergy with the government, including through the national and regional inflation control teams.
From an external perspective, the surplus in current account transactions in 2021 and 2022 reflects improvements in terms of trade, parallel to commodity price hikes. R&I projects that the current account will return to a deficit in the coming years but within a controlled range, thus maintaining Indonesia’s external resilience.
From a fiscal standpoint, the government’s commitment to controlling the fiscal deficit is evident in achieving the fiscal deficit target below 3% of GDP a year earlier. R&I believes that government revenues will remain strong in 2023, supported by tax reform policies and controlled government expenditures in line with targets.
The government forecasts a fiscal deficit of 2.3% of GDP in 2023, lower than the initial target of 2.8% of GDP, consequently impacting the government’s debt-to-GDP ratio.
R&I previously maintained Indonesia’s Sovereign Credit Rating at BBB+ (two levels above the lowest Investment Grade) with a stable outlook on July 4, 2022.