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Fitch upgrades Indonesia to BBB with stable outlook


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Fitch upgrades Indonesia to BBB with stable outlook

Fitch Ratings on Dec. 20 upgraded Indonesia's long-term foreign- and local-currency issuer default ratings to BBB from BBB- with a stable outlook.

The upgrade was driven by the country's strengthening resilience to external shocks following macroeconomic stability measures and "sufficiently disciplined" monetary policy.

Fitch forecasts Indonesia's GDP growth to increase to 5.4% in 2018 and 5.5% in 2019, up from 5.1% in 2017, as the country benefits from a global trade rebound and less volatile commodity prices.

The rating agency expects investment momentum to accelerate on the back of higher public infrastructure spending, lower borrowing costs and structural reforms that have made it easier to do business in Indonesia. The government's continued adherence to a budget deficit ceiling of 3% of GDP has also kept investor confidence steady. The 2018 deficit should come in at 2.7% of GDP, compared with the 2.2% government target.

Meanwhile, the 2018 and 2019 elections could pose a risk to the strong reform drive and dampen market sentiment, but Fitch said this outcome is not its base case.

While Indonesia's exposure to banking sector risks is limited, the country still exhibits structural weaknesses such as a low average per-capita GDP and weak governance, Fitch said. "Very low" government revenue intake has also constrained the direct government financing of infrastructure projects and will likely push up debt levels among state-owned enterprises, the rating agency added.