S&P Affirms Indonesia's Ratings at 'bb+/b', Outlook Positive

S&P Affirms Indonesia's Ratings at 'bb+/b', Outlook Positive

1 June 2016, 18:10
Roberto Jacobs

S&P Affirms Indonesia's Ratings at 'bb+/b', Outlook Positive

Rating agency S&P has affirmed Indonesia's 'BB+' long-term and 'B' short-term sovereign credit ratings. S&P noted that Indonesia's fiscal framework has improved, which should improve the quality of public expenditure and lead to more predictable fiscal outcomes. It also affirmed 'axBBB+/axA-2' ASEAN regional scale ratings on Indonesia.

The government is also taking steps to improve Indonesia's business climate by streamlining regulations and business licensing, cutting red tape, reforming tax incentives for foreigners, upgrading infrastructure, and promoting labor market flexibility. In addition, the government strengthened rules for procurement and licensing, expanded financial interest disclosure for members of parliament, and appointed ministers based on merit in order to improve public administration.

Over the rest of this government's term, we expect the administration to further improve critical infrastructure, address legal and regulatory uncertainties, and tackle bureaucratic obstacles and entrenched patronage in order to lift Indonesia's growth potential and its creditworthiness. Hence, we maintain our positive outlook on the rating." said S&P. However we may revise the outlook to stable if problems in the banking or public enterprise sectors fester, reform momentum slows or stalls, fiscal metrics do not improve, or the trend in weakening external liquidity does not abate, it added.

S&P Global Ratings estimates the fiscal deficit to result in net general government debt of 25% of GDP in 2016, rising modestly to about 27% in 2019. We project the ratio of general government interest expense to revenue to remain above 10% for the forecast horizon.

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