S&P Warned Indonesia’s Economic Recovery
The international rating agency S&P Global Ratings has issued a number of warnings to Indonesia regarding future economic conditions. High inflation, tightening monetary policy, and capital outflow are like a big storm that is feared to weigh on the pace of the domestic economy. S&P said the economic recovery would continue but inflationary pressures and external shocks were the biggest risks to the recovery. The Central Statistics Agency (BPS) noted that Indonesia’s inflation last August reached 4.69% YoY, still at the highest level in the last 7.5 years. Indonesia’s economic growth in the second quarter of 2022 reached 5.44% YoY.
S&P estimates that the Indonesian economy will grow 5.1% in 2022, higher than 3.7% in 2021. Inflation is expected to penetrate 4% in 2022 and 2023, much higher than 1.87% in 2021 as a result of rising fuel prices. One positive thing that Indonesia enjoys is the increase in exports due to commodity prices. Exports will not only support economic growth but also the current account and the rupiah. However, tightening interest rates at the global level could trigger outflows and depress the rupiah exchange rate. The Fed has raised interest rates by 225 bps this year, the European Central Bank by 125 bps, and Bank Indonesia by 25 bps last July to 3.75%.
S&P also reminded the risk of the debt interest burden being borne by the Indonesian government due to increased debt withdrawals during the Covid-19 pandemic. Based on data from the Ministry of Finance, the position of government debt at the end of June 2022 reached IDR 7,123.62 trillion, an increase compared to February 2020 at IDR 4,948.18 trillion.
