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Moody’s upgrades Indonesia outlook to positive as finances improve
[JAKARTA] Moody’s Investors Service upgraded its credit outlook on Indonesia to “positive” from “stable”, praising its progress on reforms and its efforts to keep finances under control despite falling prices for its main commodity exports.
Moody’s upgrade late on Wednesday follows a similar move by Fitch in December, and comes at a welcome time for Indonesia’s policymakers as they seek to attract and retain more foreign investment as emerging market assets globally come under stress.
Indonesia’s rupiah currency and its main stock index edged up in early trade on Thursday.
Outlook upgrades typically mean a country is closer to a ratings upgrade, which would allow it to sell government bonds at lower rates and attract more foreign investors. “The positive outlooks from Moody’s and Fitch suggest Indonesia’s sovereign credit rating is on an uptrend. We expect the factors cited by Moody’s…to continue and ultimately translate into a ratings upgrade,” economists at Nomura said in a note.
Moody’s reaffirmed its rating of Baa3 for Indonesia, its lowest notch for investment grade debt, while noting it is now less vulnerable to external shocks and has a lengthening track record of economic stability and fiscal discipline.
Fitch has an equivalent rating of BBB-.
S&P is the only major global ratings agency which still rates debt of Southeast Asia’s largest economy below investment grade, but analysts think it may soon join in. Some major institutional investors require investment grade ratings from all three agencies to buy a country’s debt.
“We think an upgrade by S&P, which still has its rating one notch below investment grade but with a positive outlook, is next,” Nomura said. “The key criteria S&P cited to support an upgrade in our view are improving, including the quality of fiscal spending, as subsidies are further reduced while the infrastructure budget is increased further. NPLs of banks have stabilised and will likely decline gradually, partly as commodity prices have improved.”
Indonesia’s central bank Governor Agus Martowardojo said in a statement that the upgrade showed international recognition of the country’s “success in maintaining macroeconomic and financial stability that create a conducive environment for sustainable growth” amid domestic and global challenges.
The governor said on Wednesday that Indonesia’s current account deficit shrank to 0.8 per cent of gross domestic product (GDP) in the fourth quarter of 2016, its smallest reading in five years, though he noted it may widen again in 2017.
The country’s foreign exchange reserves at the end of January was also at the highest since August 2011, Thomson Reuters data showed.
Scenaider Siahaan, director of borrowing strategy at the finance ministry, said the positive outlook means efforts for structural reforms “have started to show”.
Moody’s said it would upgrade Indonesia’s rating if the government reduces its reliance on external debt, while at the same time strenghtening its financial institutions, among other criteria.
But the rating agency warned it could lower the outlook back to stable if reform efforts unravel or if the government is unable to boost revenues.
Indonesia posted slower-than-expected economic growth in the fourth quarter of 2016 of 4.94 per cent and looks set to struggle to get the rate much above 5 per cent this year.
Like other emerging economies, it saw capital outflows late last year as expectations of higher US interest rates boosted the dollar and the attractiveness of US assets.
REUTERS
Source: http://www.businesstimes.com.sg/government-economy/moodys-upgrades-indonesia-outlook-to-positive-as-finances-improve