S&P raises Indonesia’s rating to ‘BBB’ on strong economic prospects

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(Reuters) – Ratings agency S&P said on Friday it had raised Indonesia’s sovereign credit rating to ‘BBB’, citing the country’s strong economic growth prospects and supportive policy dynamics.

S&P had previously rated Indonesia at ‘BBB-‘, the lowest investable grade awarded by the agency.

The upgrade put S&P on par with the ratings awarded by two other major credit rating agencies, Fitch and Moody’s.

S&P also raised its short-term sovereign credit rating to ‘A-2’ from ‘A-3’. (bit.ly/2WcvKbb)

“We raised the ratings to reflect Indonesia’s strong economic growth prospects and supportive policy dynamics, which we expect to remain following the re-election of President Joko Widodo recently,” S&P said in a statement.

Re-elected in April, Widodo is expected to continue to invest in infrastructure, though Widodo first has to overcome a challenge to his election victory that has been lodged by a rival in the Constitutional Court.

“The sovereign ratings on Indonesia continue to be supported by the government’s relatively low debt and its moderate fiscal performance,” it added.

S&P gave the new rating a stable outlook and said it would continue to monitor the country’s external and fiscal balances over the next two years for a future rating decision.

Amid bouts of volatility in emerging markets in recent years, Indonesia’s widening current account deficit has been a source of concern.

Bank Indonesia after its May policy meeting adjusted its outlook for the current account deficit to 2.5%-3% of GDP due to the U.S.-China trade war and global growth slowdown, from an initial outlook of 2.5% of GDP.

The current account gap was 3% of GDP last year.

Investment grade credit ratings awarded to Indonesia indicated confidence in the country’s efforts to maintain stability against external risks while trying to boost economic growth momentum, central bank governor Perry Warjiyo said in a statement responding to the S&P upgrade.

“Going forward, Bank Indonesia and the government remain committed to continuing structural reforms to achieve strong, sustainable, balanced and inclusive economic growth,” Warjiyo said in a statement.

The rupiah, which has been hit by renewed concerns over the fallout from the Sino-U.S. trade war in recent weeks, strengthened by 1% following the rating upgrade on Friday.

Handy Yunianto, a fixed income analyst with Mandiri Sekuritas, said any rating upgrade news will be positive for Indonesian markets despite S&P lagging behind the two other major credit rating agencies.

“At least this enforces our belief that there is potentially a further upgrade next year by Fitch and Moody’s, should the current account balance improve, inflation remain below 3.5 percent and tax revenues be sustained,” Yunianto said.

Indonesia reported a current account deficit of 2.6% of GDP in the first quarter this year, while inflation stood at 2.83% in April.

Reporting by Philip George in Bengaluru, Fransiska Nangoy in Jakarta; editing by Simon Cameron-Moore

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