"Moody's" affirms Indonosia's local and foreign currency long term issuer ratings at "Baa2"

Moody's Investors Service (Moody's) has today affirmed the Government of Indonesia's ("Indonesia") local and foreign currency long-term issuer ratings at Baa2 and maintained the stable outlook.

The local and foreign currency senior unsecured ratings and the MTN and shelf program ratings were also affirmed at Baa2 and (P)Baa2, respectively.

The affirmation of the rating is supported by continued economic resiliency and Moody's expectations that monetary and macroeconomic policy effectiveness will be maintained, containing risks as global interest rates rise, Following the hit to growth from the pandemic, Moody's expects economic activity to revert to its historical average in 2023, with growth sustaining at those rates thereafter. While factoring in some challenges to effective implementation, Moody's expects that recently passed structural reforms will support investment and export competitiveness, and limit any economic scarring.

The Baa2 rating also takes into consideration relatively weak fiscal strength. In particular, debt affordability is very weak, although the government has kept the debt-to-GDP ratio at levels well below those of similarly-rated peers, Recently approved revenue reforms and plans toward fiscal normalization will support a stabilization in the debt burden by 2023.

The stable outlook reflects balanced risks. Moody's expects reforms to be implemented at a gradual pace, with some delays or refinements likely to occur, overall maintaining growth and fiscal metrics at current levels.

Materially more or less effective reforms than currently assumed would have implications for Indonesia's credit profile. Moody's baseline expectation is also for fiscal and monetary measures taken in response to the pandemic - in particular the central bank's financing of fiscal deficits - to be normalized or reversed by the end of this year, in line with government targets.

An effective policy exit will inform overall policy credibility, with implications for foreign investor confidence, debt flows, the currency and inflation.

Concurrently, Moody's has affirmed the backed senior unsecured ratings, and the backed senior unsecured MTN programme rating of the US dollar trust certificates issued by Perusahaan Penerbit SBSN Indonesia III (PPSI III), at Baa2 and (P)Baa2 respectively.

PPSI III is a special purpose vehicle established by the Government of Indonesia. The associated payment obligations are direct obligations of the Government of Indonesia and rank pari passu with other senior unsecured debt of the government.

Indonesia's long-term local-currency (LC) bond ceiling remains unchanged at A1 and its long-term foreign-currency (FC) bond ceiling remains unchanged at A3.

The four-notch gap between the LC ceiling and issuer rating reflects a low likelihood of political event risk significantly disrupting the economy and modest external imbalances, balanced by a relatively large government footprint in the economy and some constraints on predictability and reliability of government policies.

The two-notch gap between the LC and FC ceiling reflects low external indebtedness and that a debt moratorium remains unlikely.