Jakarta. Japan Credit Rating Agency, or JCR, has upgraded Indonesia’s sovereign debt to "BBB with a stable outlook," a notch above investment grade, from BBB- on Thursday (08/02), citing that the government’s structural reforms have improved the country’s economic growth.
The Tokyo-based rating agency praised President Joko "Jokowi" Widodo's structural reforms since he took office in 2014 to reduce the country's dependency on natural resources to drive its economy.
"The effects of the reform initiatives have emerged in various aspects three years since the inauguration of the administration," a statement released by JCR said.
The agency pointed to the significant improvement in investment climate, thanks to a series of economic policy packages released by the government since 2015.
The policy packages have also lifted Indonesia's ranking to 72nd out of 190 countries in the World Bank’s ease of doing business list.
JCR said the fast infrastructure development — 60 percent of Jokowi's projects are already under construction — has helped to boost Indonesia’s economy.
Under Jokowi’s administration, Southeast Asia’s largest economy has embarked on an ambitious plan to improve infrastructures across the archipelago.
It has 245 national strategic projects under way with an estimated total investment of $327.2 billion, or around 30 percent of the country's nominal gross domestic product.
"The government intends to actively mobilize funds, including external sources for infrastructure, while continuing to contain overall external borrowing," the report said.
"JCR will closely monitor whether fund procurement from the private sector for infrastructure will proceed as planned going forward," JCR said.
The rating agency will also monitor the country's tax revenues.
As the JCR report noted, Indonesia’s current account deficit has been narrowing in recent years — expected to stay around 2 percent of gross domestic product according to the International Monetary Fund — due to improving exports, reducing the country's dependency on offshore financing.
Indonesia’s central bank, Bank Indonesia, has been tightening rules on borrowing from foreign sources since 2014, an effort which managed to shrink foreign debt made by the private sector by 5.6 percent annually to $158.7 million at the end of 2016 and kept it almost flat last year.
Bank Indonesia governor Agus Martowardojo welcomed JCR's outlook in a separate statement.
"The upgraded rating reflects the growing confidence of international institutions on Indonesia’s fundamental economic strength and the government’s commitment to improve its economic structure in the future," he said.
Agus said JCR’s outlook demonstrates a synergy between the central bank and the government to maintain macroeconomic stability and financial system to provide a conducive atmosphere for sustainable economic growth.
The central bank will continue to implement a consistent policy mix and maintain its coordination with the government, Agus also said.
Indonesia has secured investment grade ratings from the world’s "Big Three" credit rating agencies — Fitch Ratings, Standard & Poor’s and Moody’s — for the first time since 1997 after Standard & Poor’s granted a long-awaited investment grade status to Indonesia in May.