(Bloomberg) -- S&P Global Ratings returned Indonesia's outlook to stable, from negative, as it expects the country's economic rebound to support efforts to narrow the budget deficit.
The credit-rating company kept Indonesia's long-term foreign currency debt ranking at BBB, the second-lowest investment grade score. The outlook was changed “in recognition of Indonesia's improved external position and gradual progress toward fiscal consolidation,” S&P said in a Wednesday statement.
Southeast Asia's largest economy is set to expand 4.8% to 5.5% this year as its recovery from the pandemic takes hold. That has allowed the government to push forward with bringing the budget deficit back within the legal limit of 3% of gross domestic product next year, with Finance Minister Sri Mulyani Indrawati saying the fiscal consolidation is “progressing fairly quickly.”
Credit Raters Give Indonesia Breathing Room to Rein in Deficit
“Indonesia is making headway toward restoring its historically moderate fiscal deficits,” S&P said in the statement. It expects the deficit to fall further over the next two to three years.
S&P lowered the outlook in April 2020, citing the country's “weakened” external position due to rupiah's depreciation and the expectation for government's debt burden to rise.
The company may raise the rating if Indonesia's net external debt falls below 50% of current account receipts, or if gross external financing needs fall below 50% of current account receipts plus usable reserves. The ranking could also be improved if fiscal deficit falls below 3% of GDP and net debt stock falls to less than 30% of GDP or if interest payments drop below 10% of state revenue.
On the contrary, the rating could be lowered if growth or fiscal consolidation stalls, or if Indonesia's external balance worsens.
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