Indonesia's current account balance - the broadest measure of the country's global trade - showed a USD $5.5 billion deficit, equivalent to 2.15 percent of Indonesia's gross domestic product (GDP), in the first quarter of 2018. This is big widening compared to the USD $2.4 billion CAD (1.0 percent of GDP) in the first quarter of 2017. However, S&P expects Indonesia's CAD to narrow in the next couple of years on the back of strengthening global demand and higher commodity prices. Also rupiah depreciation has been key to narrow the CAD in recent years.

Other key factors that supported S&P's affirmation of Indonesia's sovereign credit rating at BBB-/stable outlook are the following:

  • Indonesia's relatively low public foreign debt. S&P believes that the government's debt-to-GDP ratio will remain stable in the next couple of years.
  • Rising tax collection (as a result of Indonesia's recently completed tax amnesty program) and rising international crude oil prices are projected to improve state revenue for the Indonesian government.
  • The rupiah's flexibility (Bank Indonesia does limit volatility but lets the currency weaken or strengthen in line with market forces) and prudent policy in managing the corporate (short-term) foreign debt risk have driven the decline in the external financing needs ratio to current account receipts (CARs).
  • S&P said the risk of deterioration in the external financing burden that is faced by Indonesia has decreased significantly.

Bank Indonesia Governor Perry Warjiyo responded to the S&P affirmation saying that his institution would continue to make efforts to maintain national macroeconomic stability. He added that the S&P rating was a reflection of Indonesia's positive economic conditions and credible policy framework.

However, S&P stated that downward pressure on Indonesia's sovereign rating could emerge if the trade and fiscal balances become worse over the next two years (than S&P's current projections). Indications of pressure on the rating would be net general government debt and budget deficits surpassing 30 percent and 3 percent of GDP, respectively, in a sustained way. Another indication is external liquidity (gross financing requirements as a percentage of current account receipts and foreign exchange reserves) consistently exceeding 100 percent, which could be triggered by a sharp decline in export prices that is not compensated by a similar decline in import prices.

Credit Ratings Indonesia:

Rating Outlook
Standard & Poor's BBB- Stable
Fitch Ratings BBB Stable
Moody's Investors Service Baa2 Stable
Japan Credit Rating Agency BBB Stable
Rating and Investment Information, Inc BBB Stable

Various sources