Wahyu Dwi Anggoro
S&P views that the decline in inflationary pressures, coupled with increased government spending ahead of the elections, is expected to boost private consumption in the latter half of 2023. These developments could support Indonesia's economic performance amidst challenges stemming from a slowdown in global demand, leading S&P to project a growth rate of 4.8% for Indonesia in 2023. S&P is also confident that ongoing policy reforms, along with favorable demographic structures, will have a positive impact on Indonesia's economy. This is further reinforced by the implementation of the revised Omnibus Law on Job Creation by the Government earlier this year, which is expected to improve the business climate, thereby stimulating investment and potential economic growth.
On the external front, S&P views that the improved external balance sheet of Indonesia will help weather normalizing commodity prices. Policies incentivizing higher value-added processing of nickel have helped solidify higher export proceed. Similar policies for other mineral ores may broaden this trend once the mining industry sets up the required processing capacity. S&P also acknowledged that Indonesia's foreign-exchange reserves have quickly recovered this year, following a decline in the second half of 2022, supported by current account surplus and renewed financial account inflows.
On the fiscal front, S&P mentions that rapid fiscal consolidation has reduced Indonesia's deficit to lower than 3% of GDP a year ahead of schedule. The fiscal deficit for the general government was about 2.4% of GDP in 2022, much lower than the 4.7% shortfall in 2021. S&P expects the deficit to decline further to about 2.3% of GDP in 2023 on higher revenue and continued expenditure management, which will gradually reduce the government's debt stock and relieve pressure on its interest burden. However, Indonesia's narrow revenue base remains a challenge to Indonesia's rating upgrade going forward.
S&P highlighted the important role of BI in supporting the country's ability to sustain economic growth and dampen economic or financial shocks. S&P views that BI's participation in purchasing government bonds has helped the government in managing its borrowing costs as the debt stock rose. S&P also acknowledges that BI has increasingly relied on market-based instruments to implement its monetary policy.
S&P previously upgraded the outlook to Stable and affirmed the Sovereign Credit Rating of the Republic of Indonesia at BBB in April 2022. (WHY)
