What Does an Investment Grade Mean for Indonesia?

The sovereign credit rating of the Republic of Indonesia stands at BBB/outlook stable, Fitch Ratings has claimed. That means Indonesia has become a country with category investment grade. Investment grade is a label or statement that a country is good enough to overcome debts and/or has relatively minimal risk of failing to pay. It also shows that the economic condition of Indonesia is stable amid the weakening global financial conditions.

Indonesia has a “healthy” debt

Fitch stated that Indonesia’s low debt burden is the safest amongst other peer countries and that Indonesia is considered ‘healthy’. The rating affirmation is supported by many factors. First, Indonesia’s economy is growing solidly. Second, the ratio of fiscal deficit to GDP decreases compared to the previous year and the ratio of government debt to GDP remains low. Third, economic resilience to external fluctuation can be maintained with the support of government and the Bank of Indonesia policies that are prioritizing macroeconomic stability.

There are two important things in ranking; rating and outlook. Rating is a capability level of paying off debts. Meanwhile, the outlook is how the sovereign credit rating predicts the next rating (vision). This ranking gives a country many benefits, both economically and politically.
Vice President to be Ma’ruf Amin said, “Indonesia has reached investment grade, which means the country is now investment-worthy. So, many people (investors) from around the world are willing to invest.” Ma’ruf Amin then said that investment-grade has made Indonesia reliable, meaning a lot of countries trust Indonesia as the destination to invest. “This situation further advances the country’s economy,” said Ma’ruf Amin again.

The country is investment-worthy

Perry Warjiyo from the Bank Indonesia welcomes the positive results of the assessment. There are three rating agencies, they are Standard and Poor’s (S&P), Moody’s, and Fitch. Those respectable agencies, according to Perry, give Indonesia the highest reliance towards Indonesia’s economic prospects, supported by the synergy of monetary, financial, and fiscal sector policies aimed at maintaining macroeconomic stability while driving the momentum of economic growth.

S&P also insisted that Indonesia will continue to grow under the leadership of President Joko Widodo. This is in harmony with the political benefit as Indonesia is considered one of the prosperous countries in the world. It means that Indonesia’s constructive economic has been in a dynamic in the midst of a challenging external environment in recent years.
Indonesia can earn further benefits after receiving this investment grade. First, it can attract additional potential capital inflows that bring a positive increase in foreign exchange reserves and increase the exchange rate. Second, there is a potential for a reduction in the burden of government debt costs which will then provide greater fiscal for the state budget.

A lot of benefits that come with investment-grade

This can also affect the reduction in ‘BUMN’ and any private companies’ debt costs because the price of government debt is a risk-free reference. Third, the investor base will be wider because some foreign investors require investment only in investments or securities with a minimum investment grade rating from the three main international rating agencies.

However, this credit rating upgrade on the other hand also provides a challenge for the government not to be complacent with praise. The government needs to improve economic, social, and political management in a better direction so that the positive impact of the credit rating upgrade can be maintained sustainably.