Moody's Investors Service has assigned Baa2 ratings to the proposed senior unsecured dollar and euro- denominated notes to be issued by the government of Indonesia, which has a long-term issuer rating of Baa2 as well, with a stable outlook.
The planned drawdowns have maturities ranging from seven to ten years. They will be issued under the government's existing US$10 billion shelf programme filed with the Securities and Exchange Commission (SEC) in the US.
The proceeds of the notes to be issued under the programme are intended to finance the budget deficit or for general financing purposes.
Analysts at Moody’s said that Indonesia’s Baa2 rating was “underpinned by policy emphasis on macroeconomic stability that increases its resilience to shocks.”
They added: “The sovereign's credit profile is supported by narrow fiscal deficits and low government debt ratios. The large size of its economy and healthy and stable growth prospects act as credit supports.”
Analysts also highlighted that downside risks include political challenges to further implementation of broad economic, fiscal, regulatory reforms. They expect such reforms to proceed relatively slowly due to the fact that the reforms address entrenched constraints and go through various institutional hurdles.
Meanwhile, the upside risks include a potential improvement in competitiveness as a result of effective reform implementation.
The Baa2 rating is unlikely to change for the foreseeable future due to the stable outlook.
That being said, analysts cited certain events which would put upward pressure on the rating. These events include a significant rise in government revenue due to fiscal policy measures, further progress towards achieving stronger growth potential and a reduction in external vulnerabilities and improvements in institutional strength.
Additionally, the analysts listed three factors which would result in downwards pressure on the Baa2 rating.
They include evidence indicating that the strengthening of Indonesia’s policy framework and institutions has stalled or reversed, if prospects of medium-term broadening of the revenue base are limited and if the financial strength of the state-owned enterprises materially worsened.