The rating on the nation’s long-term, foreign currency-denominated debt was raised one level to Baa2 with a stable outlook, Moody’s said in a statement on Friday. The upgrade brings Moody’s in line with the assessment of Fitch and puts Indonesia on par with the Philippines and India.
Indonesia’s improving resilience and capacity to respond to shocks are among the key rating drivers, Moody’s said. The upgrade would boost President Joko Widodo’s efforts to finance hundreds of billions of dollars of infrastructure to fire up the economy ahead of a presidential election next year.
“This is a near-term positive for markets and a strong validation to Indonesia’s improving fundamentals, putting it in a good position to weather recent external storms,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore.
Southeast Asia’s biggest economy has been growing at about 5 percent and is expected to pick up pace this year, but is still well short of the 7 percent targeted by Widodo, known as Jokowi.
The government’s adherence to its legally mandated budget deficit cap at 3 percent of gross domestic product and the central bank’s track record of prioritizing macroeconomic stability over promoting short-term growth are among the rating drivers, Moody’s said.
The government plans to narrow the fiscal deficit to below 2 percent of GDP next year from the 2.19 percent targeted in the 2018 budget.
“The acknowledgment is a great achievement on the back of ongoing global economic uncertainty affecting economic development in the region,” Bank Indonesia Governor Agus Martowardojo said in a statement. The central bank would continue to monitor global risks and optimize its policy mix, he said.
Bank Indonesia has succeeded in bringing down inflation to less than 4 percent, giving policy makers room to hold interest rates since October. Foreign reserves were at $126 billion in March after reaching a record $132 billion in January.
“While the Indonesia’s rating upgrade helps support the rupiah and other assets, it won’t be enough to drastically change the trend as the nation has already won investment grades from the three major agencies”, said Teppei Ino, an analyst at MUFG Bank Ltd. in Singapore. The impact would be bigger if Indonesia was raised to A grade while the current-account balance is a more significant factor for the currency, he said.