S&P Maintains Indonesia Credit Rating, Saying Fiscal Strains Could be Temporary

S&P GLOBAL RATINGS - JAKARTA. Credit ratings agency S&P on Monday affirmed Indonesia's BBB/A-2 sovereign credit ratings, saying recent fiscal strains should be temporary and could be offset by stronger commodities prices and spending cuts.

Fellow ratings agencies Moody's and Fitch cut their debt rating outlooks for Indonesia to negative in February and March respectively, citing reduced policymaking credibility in the face of rising fiscal concerns under the stewardship of President Prabowo Subianto.

 

The S&P affirmation reflects Indonesia's growth prospects and relatively light net external and government debt, the agency said, also pointing to its expectation that government revenue will continue to recover this year and export receipts will rebound with higher commodity prices.

 

Indonesia's policies to boost revenue and export earnings from the resource sector should also lift revenue over time, supporting the rating outlook, S&P said.

 

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"The stable outlook also reflects our expectation that the government continues to view its 3% annual deficit ceiling as an important policy anchor," it added.

 

S&P also cited government flexibility in adjusting the budget when necessary, such as making deep spending cuts to keep the deficit below the legal threshold.

 

Indonesia's rating could be downgraded if government debt, interest costs or external financing needs worsen significantly, while it could be upgraded if fiscal and external finances improve sustainably through lower deficits, stronger revenue, lower borrowing costs and reduced external debt, S&P said.

 

Concern over Indonesia's fiscal management and global market deterioration have battered its rupiah currency, which hit a historic low last month, forcing the central bank to conduct an off-cycle increase to interest rates.

 

"While it’s not time for complacency, we’ll take this as a win, and we continue to expect policy reforms and fiscal discipline to become more evident in the second half of the year, supporting a further recovery in confidence," said SGMC Capital fund manager Mohit Mirpuri.