Stable Credit Rating Is Good Capital in Facing Uncertainty

Strive for a stable debt rating by ensuring that macroeconomic conditions are maintained, fiscal consolidation is ongoing, and tax reform measures are continuing to maintain the flow of state revenues.

KOMPAS/AGUS SUSANTO

Construction of the Cilincing Interchange on the Cibitung-Cilincing Toll Road project section 4 of the 7.29 kilometer Tarumajaya-Cilincing section in Cilincing, North Jakarta, Sunday (8/1/2023).

JAKARTA, KOMPAS — Indonesia's sovereign credit rating, which continues to have a stable outlook, is a good capital in facing global economic uncertainty. The government needs to remain proportional in issuing debt securities to maintain fiscal-management accountability and reduce the risk of increasing debt ratios and debt-interest expenses in 2023.

International-rating agencies have mostly maintained Indonesia's sovereign credit rating at a stable outlook. For example, on 14 Dec. 2022, Fitch Ratings (Fitch) affirmed Indonesia's Sovereign Credit Rating at BBB (investment grade) with a stable outlook due to the prospects for Indonesia's economic growth, which is still good in the medium term and the government's debt ratio, which remains in a safe level.

Previously, on 27 April, 2022, Standard and Poor's (S&P) revised the outlook to Stable from Negative and affirmed Indonesia’s credit rating at BBB due to the prospects for solid economic growth and the gradual consolidation of fiscal policy by the government.

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Economist at the Center of Reform on Economics (CORE) Indonesia, Yusuf Rendy Manilet, said in Jakarta on Thursday the Indonesia’s credit rating, which continued to maintain a stable outlook, could be an advantage in facing global economic uncertainty this year. This would boost investor confidence in Indonesia's credit profile and government-debt market.

“This good rating will have an impact on the potential yield offered by the government later. The higher our debt rating, the yield offered by the government can be more competitive," he said.

Macroeconomics and financial market researcher at the Research Institute for Economics and Society, School of Economics and Business, the University of Indonesia (LPEM FEB UI), Teuku Riefky, said that Indonesia's stable debt profile reflected fiscal conditions that were still quite accountable. With a good debt rating and controlled risks, Indonesia can have lower lending interest rates.

First auction

On 5 Jan. 2023, the government conducted this year's first auction of government securities (SUN) in United States dollars using the SEC-Registered format with transaction results of Rp 46.9 trillion (US$3 billion). There are three series of SUN issued by the government, consisting of debt papers with tenors of five years, 10 years and 30 years.

In an official statement on Thursday, the Directorate General of Financing and Risk Management (DJPPR) of the Finance Ministry said that the issuance of the bonds took advantage of improving financial market sentiment and strong investor interest. Indonesia is also the first country in the Asian emerging market region to issue global bonds in early 2023.

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“Orders entered in the orderbook are very high, with total orders reaching more than US$17 billion. This is evidence of global investors' recognition of Indonesia's strong economic fundamentals in managing state financing," the statement read.

When contacted, the Director General of Financing and Risk Management at the Finance Ministry, Suminto, said that the State Budget financing strategy, including through the issuance of government securities (SBN), was still arranged in a flexible and opportunistic manner. In addition to considering the condition of the cash and financing needs of the State Budget, the government is also considering market condition.

Be careful

Yusuf said that the government still needed to be careful in issuing bonds at the beginning of the year or frontloading. On the one hand, issuance at the beginning of the year could be also an important strategy to cover financing for state spending when there is no tax or non-tax income yet.

However, on the other hand, a frontloading strategy that is too excessive can push the debt ratio and debt interest expense higher throughout 2023. “Right now there is a need, but interest rates are also high. So, we must remain proportional and should wait for the trend for lower interest rates, then issue again," said Yusuf.

This article was translated by Hendarsyah Tarmizi.