Coordinating Minister for the Economy Airlangga Hartarto discussed the issue of the Standard and Poor's (S&P) rating agency increasing Indonesia's outlook from negative to stable and maintaining Indonesia's rating at the BBB (Investment Grade) level on 27 April 2022. The S&P rating agency believes that a stable outlook is an acknowledgment of improvement in Indonesia's external sector, Indonesia's economic recovery that will continue over the next two years, and gradual progress towards Government fiscal consolidation. Meanwhile, the BBB rating is based on Indonesia's solid economic growth prospects and future-oriented policy dynamics. “In the midst of the economic recovery process and global risks such as the Russia-Ukraine conflict and rising global inflation, we are grateful after two years that Indonesia's outlook was finally upgraded to stable from negative by the S&P rating agency. This indicates that investor confidence is still strong in the credibility of the Government's policies and the resilience of the Indonesian economy," he said, Friday (29/04/2022). In the report, S&P projects that Indonesia's economic growth will increase to 5.1 percent in 2022 as economic restrictions are opened.
Although the Russia-Ukraine geopolitical conflict poses new risks especially on the demand side, it tends to be well managed. The Job Creation Law will encourage investment trends in line with the Government's commitment to resolving the legal issues of the Job Creation Law. The S&P rating agency also considers that the Job Creation Law, which was passed in November 2020, will improve the business and investment climate as well as the growth of economic potential. The Job Creation Law also provides for lower corporate tax rates and more flexible labor market policies. Furthermore, S&P believes that the Government of Indonesia can ensure the continued implementation of the Job Creation Law in the future. Furthermore, S&P hopes that Indonesia's recovery rate will accelerate further this year after growing 3.7 percent in 2021 and a 2.1 percent contraction in 2020. This condition was triggered by the Government's success in handling Covid-19, wide vaccination coverage, increased immunity group (herd immunity), and the milder impact of the omicron variant, thereby loosening restrictions and encouraging the normalization of economic activity. In addition, several sectors also benefited from the increase in commodity prices. The external side is also assessed by S&P as having stabilized after the contraction due to the 2020 pandemic. The export value in March 2022 was recorded at US$26.50 billion and this value increased significantly by 29.42% (mtm) or by 44.36% (yoy). Indonesia's trade balance in March 2022 again experienced a sizeable surplus of US$4.53 billion. The increase in exports led to a strengthening of the current account and stronger revenue performance helped the Government to consolidate its fiscal position. The consumption indicator as the main driver of Indonesia's GDP shows optimism, as can be seen from retail sales that continue to grow positively, the Consumer Confidence Index at an optimistic level (>100), as well as an increasing trend in core inflation which illustrates improving public demand. This recovery in consumption will encourage the industry to produce, as reflected in the Purchasing Managers Index (PMI) which has been stable at the expansion level (>50) since September 2021, as well as banking credit growth which continued to rise in February 2022 in line with the optimism of the business world towards the Indonesian economy. "In the future, the Government will continue to monitor various external risks, especially the Russia-Ukraine conflict which has an impact on price increases and inflation by continuing to maintain people's purchasing power," he concluded.
