S&P lifts Indonesia's credit rating to investment grade

The rating upgrade comes on the back of a successful tax amnesty that earned the Indonesian government more than US$11 billion (S$15.3 billion) in revenue, helping to ease pressure on the budget and pay for much-needed infrastructure projects.
The rating upgrade comes on the back of a successful tax amnesty that earned the Indonesian government more than US$11 billion (S$15.3 billion) in revenue, helping to ease pressure on the budget and pay for much-needed infrastructure projects.PHOTO: REUTERS

Agency says upgrade reflects its assessment of reduced risk to the country's fiscal position

JAKARTA • S&P Global Ratings has raised Indonesia's credit rating to investment grade, bringing it in line with the other two main rating companies and paving the way for more fund inflows into South-east Asia's largest economy.

The sovereign rating was lifted to BBB- from BB+ and the outlook was changed to stable, S&P said yesterday, saying the move reflected its assessment of reduced risks to the country's fiscal position.

A rating upgrade usually means an economy can get cheaper cost of borrowing for its bonds.

Both Moody's Investors Service and Fitch Ratings have a positive outlook on their assessments of the nation's debt.

Get The Straits Times
newsletters in your inbox

The upgrade may boost the appeal of Indonesian assets among conservative Japanese institutional investors and help attract as much as US$5 billion (S$7 billion) in funds, Goldman Sachs Group said in March.

S&P had been slow to follow Moody's and Fitch in raising the nation's debt to investment grade because of growth concerns and rising bad debts.

Momentum in the economy has picked up this year as exports rebounded, with the International Monetary Fund forecasting growth of 5.1 per cent in 2017.

The S&P upgrade comes on the back of a successful tax amnesty that earned the government more than US$11 billion in revenue, helping to ease pressure on the budget and pay for much-needed infrastructure projects.

President Joko Widodo's government cut public spending last year to meet a legal fiscal deficit cap of 3 per cent of gross domestic product and built up foreign exchange reserves to a more than five-year high of US$123 billion.

Indonesia's current account deficit shrank to 1 per cent in the first quarter, Bank Indonesia's (BI) deputy governor Perry Warjiyo said on Thursday.

"Indonesia's increased focus on realistic budgeting has reduced (the) likelihood that shortfall in future revenue would widen general government deficit significantly," he said.

The nation also has ample foreign exchange reserves, Mr Warjiyo said, adding that 90 per cent of companies are currently compliant with BI's mandatory hedging rules for foreign debt, making currency mismatch risks low.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on May 20, 2017, with the headline 'S&P lifts Indonesia's credit rating to investment grade'. Print Edition | Subscribe