S&P Reaffirms Indonesia\u2019s BBB Rating, Flags Policy Execution\nRisks<\/p>\n
Jakarta. S&P Global Ratings on Monday affirmed Indonesia\u2019s \u2018BBB\u2019\nlong-term and \u2018A-2\u2019 short-term sovereign credit ratings with a stable\noutlook, saying the country\u2019s weakened fiscal and external positions are\ntemporary and should improve as commodity prices recover and the\ngovernment maintains fiscal discipline.<\/p>\n
\u201cThe outlook on the long-term rating is stable, reflecting our\nexpectation that the deterioration in fiscal and external metrics is\ntemporary and will reverse with higher commodity prices and a more\nstable pace of policy changes,\u201d S&P said. The agency expects\ngovernment revenue and export receipts to recover this year, while\npolicies to boost revenue from the resource sector should strengthen the\ncountry\u2019s fiscal position over time if implemented predictably and\neffectively.<\/p>\n
S&P said Indonesia\u2019s sovereign rating continues to be supported\nby robust economic growth prospects, prudent macroeconomic management,\nand relatively low government and external debt compared with similarly\nrated peers.<\/p>\n
S&P then forecasts the Indonesia economy to expand 5.1% in 2026\nbefore averaging 4.9% annually between 2026 and 2029, despite higher\nfuel prices, elevated interest rates, and persistent external\nuncertainties.<\/p>\n
The agency said Indonesia\u2019s financial markets came under pressure in\nthe first half of the year, with the rupiah weakening by around 7%\nagainst the US dollar and the benchmark stock index losing more than 30%\nof its market capitalization despite resilient economic growth. It\nattributed the divergence to heightened external risks, including the\nMiddle East conflict and the closure of the Strait of Hormuz, as well as\ndomestic policy uncertainty.<\/p>\n
\u201cThe pace of policy changes and uncertainties over implementation\ncould affect investor confidence and weigh on currency and financial\nmarkets,\u201d S&P said.<\/p>\n
S&P also added that government policies to tighten oversight of\nthe mineral and resource sector could eventually lift state revenue and\nexport earnings. It noted that Danantara Sumberdaya Indonesia (DSI) is\nexpected to reshape the commodity export sector by helping curb\npractices such as under-invoicing and transfer pricing, while warning\nthat policy execution remains a key risk.<\/p>\n
Despite higher spending on energy subsidies, S&P expects\nIndonesia to keep its fiscal deficit below the legal ceiling of 3% of\nGDP through expenditure cuts and stronger revenue collection as\ncommodity prices recover. Revenue rose 21% in the first six months of\nthe year from a year earlier, supported by improving tax and non-tax\nreceipts, according to the report.<\/p>\n
\u201cOn balance, we expect the fiscal deficit to remain just under 3% of\nGDP this year. A record of fiscal discipline over multiple\nadministrations underpins Indonesia\u2019s credit profile,\u201d S&P said.<\/p>\n
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