Moody's Predicts Under 5% Growth for Indonesia in 2020



Petir Garda Bhwana

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  • TEMPO.CO, JakartaMoody's predicted Indonesia's 2020 economic growth to decelerate as a result of a global slowdown as an impact of the coronavirus outbreak. Moody's vice president and senior analyst Anushka Shah expects Indonesia's GDP growth to slow to under than 5 percent this year.

    In a report released on February 17, Shah wrote that the "global growth remains tepid and as Chinese demand for commodities could soften on the back of the coronavirus outbreak."

    Nevertheless, he added that even with a slowdown in growth, Indonesia's economy continues to outpace most Baa-rated sovereigns, "allowing increases in average incomes." 

    At 12.4 percent GDP in 2019, Indonesia's government revenue remains significantly below other nations' Baa average of 27.6 percent.

    "It is the lowest of all investment-grade sovereigns. Weak revenue also weighs on debt affordability," Moody's report said.

    Luckily for Indonesia, these constraints are balanced by fiscal discipline that are based on a very strong adherence to a statutory deficit ceiling, which is at around 3.0 percent of GDP. In 2019, low deficits kept the government's debt burden at around 30 percent of GDP, below the Baa median of 47.3 percent.

    On the external front, Indonesia's current-account deficit was 2.7 percent in 2019, higher than its lowest level of 1.6 percent recorded in 2017. Indonesia's external buffers were strong enough to withstand shocks, with foreign reserves recovering from 2018's rupiah depreciation. 

    Looking ahead, Moody's expects Indonesia's reforms to reduce structural and fiscal constraints will continue—albeit slowly, just like the relatively slow progresses achieved over the past few years.