For the first time since the Asian financial crisis, Indonesia’s sovereign bonds are rated investment grade by all three major credit ratings agencies after Standard & Poor’s today lifted its rating on the country’s debt.
Indonesia’s finance ministry has been pushing hard to achieve this and will see it as an important validation of their management of the economy and the country’s sound finances.
In lifting the country’s credit rating one notch to Bbb- and the outlook higher to stable, S&P said in a statement today that:
Indonesian authorities have taken effective expenditure and revenue measures to stabilize the country’s public finances despite the terms of trade shock.
The agency said it expects net government debt to stabilise near current low levels below 30 per cent, while the budget deficit will gradually decline.
S&P said Indonesia has “exhibited effective policymaking in recent years to promote sustainable public finances and balanced economic growth” and said economic and policy settings “have become more predictable recently.”
Rival agency Fitch raised Indonesia’s credit rating to its current level of Bbb- in December 2011, while Moody’s Investors Services gave the country a Baa3 rating as of January 2012.
S&P’s move means this is the first time since December 1997 and the Asian financial crisis that Indonesia’s bonds have been rated investment grade by all three major ratings agencies.
The Jakarta Composite leapt on the news, and was up 3.1 per cent to a record high of 5,820.2, while the rupiah reversed early declines to be 0.2 per cent stronger at 13,333 per dollar. The yield on Indonesia’s 10-year bond was up 2.3 basis points at 7.068 per cent.
Trinh Nguyen, an economist at Natixis, said:
This is a well-deserved upgrade thanks to its prioritization of fiscal sustainability at the expense of growth in 2016; and the country’s key metrics, whether it’s growth or fiscal sustainability, are comparable to similarly rated IG. This upgrade would allow Indonesia to: access a pool of eligible foreign investors that only invests in at least IG rated asset, lowering funding costs; have a spillover impact to quasi sovereign assets as well as a sentimental lift that may boost equity and the real economy.