Tassia Sipahutar, Business – Indonesia is predicted to see stable growth in the near future after taking several measures, but the economy remains susceptible to external headwinds, according to a report by rating agency Moody's.

The report, which was published on Thursday, highlights the country's economic recovery and recent government policies. "The government has recently made progress in facilitating infrastructure development, and the declining inflation has allowed for monetary easing," it says.

The infrastructure measures started when President Joko "Jokowi" Widodo decided to slash fuel subsidies in late 2014 to free up budget funds for infrastructure development.

That resulted in a significant jump in infrastructure-related spending under the revised 2015 state budget. For the first time ever, spending on infrastructure exceeded that of energy with Rp 290.3 trillion (US$21.71 billion).

Reforms continued in 2016 with an even higher allocation for infrastructure-related work at Rp 313.5 trillion and with an earlier tender process and commencement of infrastructure projects.

The government also issued 10 policy packages to accelerate infrastructure spending and improve the investment climate, which Moody's said should support investment.

At the same time, full-year inflation eased to 3.3 percent in 2015, down from 8.4 percent in 2014, paving the way for Bank Indonesia (BI) to lower its key interest rate in January, the first cut in 11 months.

Moody's expects growth to stabilize at 4.7 percent in 2016, before picking up to 5 percent in 2017, below the average rate of 5.6 percent in the past 10 years. Moody's forecast for this year is lower than the government's projection of 5.3 percent and BI's estimate of 5.2 to 5.6 percent.

According to the report, external shocks may worsen the country's fiscal, debt or balance of payment metrics, especially given Indonesia's high exposure to commodities, which are suffering from low prices. However, the rating agency said Indonesia had exhibited prudent fiscal management with a deficit ceiling at 3 percent of the gross domestic product (GDP).

Such fiscal management allowed for rapid consolidation in the country's debt burden from around 100 percent of GDP at the start of the millennium to 23 percent in 2012.

"We expect the government to continue to adhere to its fiscal rules, likely at the expense of fiscal accommodation. While this would further weigh on economic growth, it will likely keep the debt burden low."

Overall, Moody's maintains the government bond rating at Baa3 stable. A Baa3 rating indicates that the obligations are medium-grade and subject to moderate credit risk and that the issuer has an acceptable ability to repay short-term obligations.

The stable outlook, meanwhile, indicates a low likelihood of a rating change over the medium term. Indonesia's rating may be upgraded if the government diversifies its revenue sources to ensure a sustainable increase in revenues.

Source: http://www.thejakartapost.com/news/2016/02/12/moody-s-sees-stable-growth-ahead-headwinds-remain.html