Indonesia's credit rating raised to investment grade by S&P
20 May, 2017, 00:41
On Friday, S&P Global Ratings raised Indonesia's sovereign rating to an investment grade. Stocks surged to a record and the rupiah advanced.
"Indonesia's increased focus on realistic budgeting has reduced likelihood that shortfall in future revenue would widen general government deficit significantly", it said.
S&P said the upgrade reflected its assessment of reduced risks to the country's fiscal position.
Indonesia has eased pressures on the state's development budget as it secured over 11 billion US dollars in revenue following a successful tax amnesty, helping financing ongoing huge infrastructure projects.
Fitch upgraded Indonesia to investment grade in December 2011 and Moody's in January 2012.
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.
The Jakarta Composite Index jumped as much as 3.2 percent to a record 5,825.2, extending gains this year to nearly 10 percent. The rupiah rose as much as 0.3 per cent, paring losses of as much as 0.5 per cent earlier and taking gains this year to 1 per cent. Among the benefits of the upgrade include access to a pool of eligible foreign investors that only invest in at least investment-grade rated assets, lowering funding costs, she said.
S&P had previously not followed other big ratings agencies due to a host of concerns. 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. 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.
S&P said controls on spending will probably help to keep the deficit under 2.5 percent of GDP over the next three to four years. Consequently, S&P is of the view that net government debt is expected to remain below 30 percent of GDP.
Indonesia is trying to lure investors for a $450 billion infrastructure drive to revive economic growth.
Bank Indonesia Governor Agus Martowardojo welcomed the S&P upgrade.
The main weakness for Indonesia is its status as a lower middle-income country and its vulnerability to external shocks given the economy's reliance on commodities and foreign inflows, S&P said.
In recent quarters, Indonesia has had annual growth of 5 percent or less.
"It's about time", Wellian Wiranto, an economist at OCBC Singapore wrote in a report on the upgrade headlined: "Better late than never". Tough reforms got Indonesia to this point.