Washington DC [US], March 5: Fitch Ratings on Wednesday cut Indonesia's credit rating outlook to negative from stable, citing increasing uncertainty and reduced credibility in policymaking, in a move that will add to investor concerns about Southeast Asia's largest economy. Fitch became the second rating agency to revise down Indonesia's sovereign rating outlook this year, after Moody's last month cut its outlook due to what it said was reduced predictability in policymaking.
Both agencies have maintained Indonesia at the second-to-lowest investment grade rating, and a negative outlook means the agency's next rating action could be a downgrade. The earlier Moody's outlook cut rattled Indonesia's financial markets and followed index provider MSCI flagging transparency issues in the stock market, which triggered a $120 billion rout.
"The outlook revision reflects increasing policy uncertainty and erosion of Indonesia's policy mix consistency and credibility amid growing centralization of policymaking authority," Fitch said.
In response to the Fitch move, Indonesia's finance ministry said the government was committed to maintaining macroeconomic stability and fiscal discipline as mandated by law.
Its spending acceleration and economic stimulus would be carried out in a measured manner, bearing in mind fiscal health, it said. Among the drivers of the outlook downgrade is a potential substantial loosening of the fiscal and monetary policy mix, stemming from the government's focus on lifting economic growth to 8 percent from around 5 percent now, Fitch said.
It highlighted parliament's plan to review Indonesia's state finance law, which mandates the government keep its annual fiscal deficit under 3 percent of GDP and public debt at a maximum of 60 percent of GDP.
"Material relaxation of the longstanding fiscal framework, including the 3 percent deficit ceiling, would likely weaken policy credibility and the ability to finance higher fiscal deficits without support from the central bank," Fitch said.
Source: Qatar Tribune
