Sri Mulyani: Indonesia Entitled to S&P's Investment Grade Rating
Indonesian Finance Minister Sri Mulyani Indrawati is hopeful that credit rating agency Standards & Poor's (S&P) will raise Indonesia's credit rating to investment grade. Hope is based on Indonesia's healthier state budget and the higher degree of fiscal credibility (supported by the ongoing tax amnesty program). Out of the big three global credit rating agencies only S&P is yet to assign investment grade status to Indonesia. In June 2016 S&P kept Indonesia's sovereign debt rating at BB+/positive outlook, one notch below investment grade.
In the statement released in June 2016 S&P did leave the door open for a future rating upgrade but the Indonesian government will have to enhance its fiscal performance. The credit rating agency, known as the most conservative one among the big three, informed that issues that block Indonesia's upgrade are (expectation of) the nation's rising budget deficits in the years ahead and the decline in Indonesia's corporate credit quality. Although S&P detected an improvement in Indonesia's fiscal stability, this improvement is not structural yet.
Investment grade status is important as Indonesia will be able to attract much-needed long-term investment funds to support the financing of the state budget and current account deficit.
During the International Monetary Fund (IMF) and World Bank Group annual meeting (organized between 4 - 9 October 2016 in Washington), Sri Mulyani discussed credit ratings with S&P as well as Fitch Ratings and Moody's Investors Service (that both already assigned investment grade status to Indonesia in 2011 and 2012, respectively). At this annual meeting Sri Mulyani, together with Bank Indonesia and Financial Services Authority (OJK) officials provided an update on the development of the Indonesian economy.
Earlier this year the Indonesian government cut public spending in the Revised 2016 State Budget by nearly IDR 138 trillion (approx. USD $10.6 billion) in order to prevent the budget deficit from widening too much. Meanwhile, additional revenue from the government's tax amnesty program would keep the deficit in check (implying that further spending cuts - for example on infrastructure and social development - will not be necessary) and maintain the country's fiscal credibility. Inflows through the tax amnesty program will also prevent excessive volatility that is expected to emerge when the US Federal Reserve decides to raise its key Fed Funds Rate (possibly this December), a move that should lead to capital outflows from emerging market economies.
Credit Rating ASEAN Nations:
| Country | Standard & Poor's | |
| Rating | Outlook | |
| Singapore | AAA | Stable |
| Malaysia | A- | Stable |
| Thailand | BBB+ | Stable |
| Philippines | BBB | Stable |
| Indonesia | BB+ | Positive |
| Vietnam | BB- | Negative |
| Cambodia | B | Stable |
Source: Investor Daily
Credit Rating Indonesia:
| Standard & Poor's | Fitch Ratings | Moody's | ||||
| Rating | Outlook | Rating | Outlook | Rating | Outlook | |
| Indonesia | BB+ | Positive | BBB- | Stable | Baa3 | Stable |
Source: Standard & Poor's
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