Japan Credit Rating Agency Affirms Indonesia’s Sovereign Credit Rating at BBB+/Stable Outlook (Investment Grade)

No.22/96/DKom

Japan Credit Rating Agency, Ltd. (JCR) affirms the Sovereign Credit Rating of the Republic of Indonesia at BBB+/stable outlook (investment grade) as announced on December 22^nd, 2020. In response to the statement, Governor of Bank Indonesia, Perry Warjiyo expressed that 'JCR's affirmation onIndonesia's rating at BBB+/stable outlook reflects the maintained confidence of international stakeholders in the resilience of the Indonesian economy amidst the Covid-19 Pandemic which has significantly suppressed the global economy. This supported by the credibility of the policies and strong coordination of policy mix between Bank Indonesia and the Government. Going forward, Bank Indonesia will continue to closely monitor global and domestic economic developments, take the necessary policy measures to ensure macroeconomic and financial system stability and continue the synergy with the Government to accelerate the national economic recovery.'

According to JCR, the ratings mainly reflect the country's solid domestic demand-led economic growth potential, restrained public debt, and resilience to external shocks supported by flexible exchange rate and monetary policies and accumulation of foreign exchange reserves. On the other hand, the ratings are constrained by its relatively high dependence on natural resources, the revenue base that remains small relative to the size of the economy, and the domestic financial system which is still in the process of financial deepening.

There are two main factors supporting Indonesia's Sovereign Credit Rating affirmation. First, the government has been controlling the Covid-19 Pandemic impact on the real economy through expansive fiscal measures while carefully managing restrictions on the economic activities, while the central bank has also taken aggressive measures to supply liquidity to the economy. Accordingly, a slowdown of the economy in 2020 is expected to be moderate as compared with other countries. Even after the current fiscal expansion, the government debt-GDP ratio is expected to rise only to a 40% level. Second, the government has been maintaining the momentum of economic structural reforms even amid the pandemic, as evidenced by the enactment of the 'Omnibus Law on Job Creation.'

JCR had previously upgraded the Sovereign Credit Rating of the Republic of Indonesia from BBB/ Positive to BBB+/Stable (Investment Grade) on January 31st, 2020.

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