Moody's detects a weakness in Indonesia's government revenue. Not only have the persistently low commodity prices (such as crude oil, crude palm oil and coal) caused weaker foreign exchange earnings from the country's exports and dragged down the process of economic growth, but it also causes the Indonesian government to have less financial resources to finance its ambitious infrastructure development program. This situation could make Indonesian policymakers less committed to existing fiscal rules and thus raise the country's indebtedness in order to seek financial resources. However, Moody's stated that it does not expect to see a weaker commitment to the nation's prudent fiscal policy.

Despite the Indonesian rupiah having depreciated 11 percent against the US dollar in 2015, while Indonesia's gross domestic product (GDP) growth in Q3-2015 fell to the weakest growth pace in nearly six years, Moody's sees effective policies having been implemented by Indonesian policymakers over the past couple of years, hence reducing the negative impact of severe global volatility on Southeast Asia's largest economy (severe volatility was brought about by the US Federal Reserve's tighter monetary policy and China's economic slowdown).

Moody's also applauded the fact that Indonesia's current account deficit narrowed from more than 4 percent of GDP in mid-2013 to less than 2 percent of GDP in Q3-2015. This deficit had made Indonesia particularly susceptible to capital outflows in times of global economic shocks.

Indonesia's Macroeconomic Profile:

    2009   2010   2011   2012    2013    2014    2015
Gross Domestic Product
  (annual percent change)
   4.6    6.4    6.2    6.0     5.6     5.0     4.7¹
• Consumer Price Index
  (annual percent change)
   4.8    5.1    5.4    4.3     8.4     8.4     3.4
• Public Debt
  (percent of GDP)
  28.6   27.4   26.6   27.3    28.7    24.7    27.0
Exchange Rate
10,389  9,074  8,773  9,419  11,563  11,800  13,400¹
Current Account Balance 
(percent of GDP)
     0.7    0.2   -2.8    -3.3    -2.9    -2.5¹
Export Goods & Services
  (annual percent change)
    14.9   13.6    2.0     5.3     1.0    -0.7¹
Import Goods & Services
  (annual percent change)
    17.3   13.3    6.6     1.2     2.2    -5.7¹
• Population
  (in millions)
    241   244   247    250    253    255¹
• Poverty
  (percent of population)
  14.2   13.3   12.5   11.7    11.5    11.0    11.1
  (percent of work force)
   7.9    7.1    6.6    6.1     6.3     5.9  
• Foreign Exchange Reserves
  (in billion USD)
  66.1   96.2  110.1  112.8    99.4   111.9   105.9

¹ indicates a forecast
Sources: World Bank, Statistics Indonesia, Bank Indonesia and International Monetary Fund (IMF)

Indonesia will be eligible for a credit rating upgrade by Moody's when government revenue growth is sustainable, the current account deficit continues to improve, inflation remains under control (structurally), infrastructure development speeds up further, regulatory bottlenecks are dealt with, and the local capital market is deepened (reducing need for external financing).

In 2014 the government of Indonesia only collected IDR 1,504. 5 trillion (approx. USD $110 billion) from taxes, fees and royalties, nearly 15 percent short of the target. Although it is usual for Indonesia to fail to achieve its tax revenue target, the gap last year was the largest gap that has been recorded over the past decade. This poor performance was partly caused by an overly ambitious tax revenue target in combination with slowing economic growth (implying corporate taxes were set to decline). In 2016 the government targets to raise IDR 1,822 trillion in tax revenue.

Moody's said Indonesia's credit rating could be downgraded if current sluggish economic growth (below five percent y/y) persists for a structural period, while the government fails to deliver its reform programs. Although its is positive that Indonesia has been unveiling a series of economic stimulus packages since September 2015, the country has a weak track record regarding the full implementation of such reforms.

Economic Stimulus Packages of the Indonesian Government:

Package Unveiled Main Points
1st 9 September
• Boost industrial competitiveness through deregulation
• Curtail red tape
• Enhance law enforcement & business certainty
2nd 30 September
• Interest rate tax cuts for exporters
• Speed up investment licensing for investment in industrial estates
• Relaxation import taxes on capital goods in industrial estates & aviation
3rd 7 October
• Cut energy tariffs for labor-intensive industries
4th 15 October
• Fixed formula to determine increases in labor wages
• Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses
5th 22 October
• Tax incentive for asset revaluation
• Scrap double taxation on real estate investment trusts
• Deregulation in Islamic banking
6th 5 November
• Tax incentives for investment in special economic zones
7th 4 December
• Waive income tax for workers in the nation's labor-intensive industries
• Free leasehold certificates for street vendors operating in 34 state-owned designated areas
8th 21 December
• Scrap income tax for 21 categories of airplane spare parts
• Incentives for the development of oil refineries by the private sector
• One-map policy to harmonize the utilization of land
9th 27 January
• Single billing system for port services conducted by SOEs
• Integrate National Single Window system with 'inaportnet' system
• Mandatory use of Indonesian rupiah for payments related to transportation activities
• Remove price difference between private commercial and state postal services