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Fitch ratings affirms Indonesia's 'BBB' rating with stable outlook

Jakarta Globe - March 16, 2024

Indah Handayani, Jakarta – Fitch Ratings has affirmed Indonesia's credit rating at 'BBB' with a stable outlook. Governor of Bank Indonesia (BI), Perry Warjiyo, stated that the rating reflects strong international stakeholders' confidence in macroeconomic stability.

"Moreover, it underscores Indonesia's sustained medium-term economic prospects following the 2024 elections," Perry said in his statement on Saturday.

Perry emphasized that this international trust is supported by policy credibility and strong policy synergy between the Government and the central bank amidst the lingering high global economic uncertainty. Moving forward, Bank Indonesia will continue to monitor global and domestic economic and financial developments, formulating and implementing necessary measures to ensure the maintenance of macroeconomic and financial stability.

"This includes potential adjustments in policy stances and ongoing reinforcement of synergies with the Government to support the achievement of inclusive and sustainable economic growth," added Perry.

According to Fitch's projections, GDP growth for 2024 is expected to remain relatively stable at 4.9 percent, slightly lower than the 5.05 percent recorded in 2023, with an anticipated acceleration to 5.3 percent in 2025. This trajectory is attributed to strengthened investment following reduced near-term policy uncertainty expected after the installment of a new government in October this year.

"We anticipate a deceleration in export momentum in the first half of the year due to weakening global demand. However, robust domestic investment and consumption are likely to bolster growth, buoyed in part by expenditure related to nationwide local elections scheduled for November," stated the credit rating agency.

Fitch anticipates continuity in broad economic policies under the next government, following the 2024 presidential election, in which Defense Minister Prabowo Subianto is expected to emerge victorious. The agency predicts a sustained focus on infrastructure development, including efforts in the construction of the new capital city, Nusantara, in East Kalimantan. Additionally, initiatives to support commodity industrialization and expand battery and electric-vehicle (EV) manufacturing are expected to continue. Monetary and fiscal policy settings are also likely to remain supportive of macroeconomic stability, at least for the remainder of the year.

However, Fitch noted that medium-term fiscal risks have increased due to uncertainties surrounding the fiscal plans of the next government and the potential costs associated with campaign promises."Prabowo's campaign, for instance, advocated a free school lunch and milk program that could cost around 2 percent of GDP annually, according to his team. He also stated that Indonesia could sustain a significantly higher government debt/GDP ratio and would aim for 8 percent GDP growth," it said.

Source: https://jakartaglobe.id/business/fitch-ratings-affirms-indonesias-bbb-rating-with-stable-outloo