[vc_row][vc_column][vc_row_inner][vc_column_inner][mk_image src=”https://invest-islands.com/wp-content/uploads/2018/02/1302.jpg” image_size=”full” align=”center” margin_bottom=”30″][mk_fancy_title size=”35″ font_family=”none”]Moody’s Investors Service Could Upgrade Indonesia’s Sovereign Credit Rating [/mk_fancy_title][vc_column_text]
Credit rating agency Moody’s Investors Service signaled in a new research report that it could upgrade Indonesia’s current sovereign Baa3 (positive outlook) credit rating provided it detects an improvement in several macro-economic indicators. In 2012 Moody’s granted the investment grade status back to Indonesia. Meanwhile, exactly one year ago (in February 2017) it upgraded Indonesia’s sovereign credit rating outlook from stable to positive.
There are several economic indicators and developments that can count on the highest attention of Moody’s Investors Service. These matters are at the heart of the decision to raise Indonesia’s credit rating.
Firstly, Indonesia should reduce its reliance on foreign debt. Based on the latest data from Indonesia’s central bank (Bank Indonesia), the country’s external debt amounted to USD $347.3 billion at the end of November 2017, up 9.1 percent year-on-year (y/y). Private sector external debt reached USD $170.6 billion, up 4.2 percent (y/y), while public sector external debt reached USD $176.6 billion, up 14.3% (y/y). A high amount of foreign debt can become a serious issue in times of rupiah weakness, for example another Fed Funds Rate hike may very well strengthen the position of the US dollar.
Key to overcome the Indonesian government’s reliance on foreign debt is to boost domestic revenue streams. In this context an increase in tax revenue realization is very important. Currently, Indonesia still continues to underdeliver in terms of tax revenue realization as tax compliance as well as tax monitoring in Southeast Asia’s largest economy is very weak. Hence, the country’s tax-to-GDP ratio is very weak as well.
Secondly, Moody’s states that the strengthening of institutional development is a must for Indonesia. Institutional development is explained as the creation or reinforcement of a network of organizations to generate, allocate, and use human, material, and financial resources effectively to attain specific objectives on a sustainable basis.
It is interesting to note – when comparing Moody’s 2018 research notes to last year’s research note – that Moody’s concerns seemingly have shifted from Indonesia’s high non-performing loan (NPL) ratio and costly subsidies to fiscal issues and the rising amount of foreign debt.
Suahasil Nazara, Chairman of the Fiscal Policy Agency (BKF) at Indonesia’s Finance Ministry, is optimistic that Indonesia will see another ratings upgrade in 2018 supported by robust economic growth (5.07 percent y/y in 2017), controlled inflation (at 3.61 percent y/y in 2017), and the fiscal deficit safe at 2.5 percent. He also projects Indonesia’s tax revenue growth in 2018 at 16 percent (y/y).