Fitch Lowers Indonesia's Credit Outlook to Negative, Here Are the Considerations

JAKARTA, KOMPAS.com - The international rating agency Fitch Ratings has revised the credit rating outlook for Indonesia to negative from the previously stable. However, Fitch maintains the BBB rating for the Long-Term Foreign-Currency Issuer Default Rating (IDR). The change in outlook reflects increasing policy uncertainty, as well as concerns about the coherence of Indonesia’s economic policy framework. Yet Fitch still maintains Indonesia’s credit rating at the investment grade level of BBB. This reflects the government’s track record in maintaining macroeconomic stability, a relatively low debt-to-GDP ratio, and a growth outlook that remains strong relative to other countries with the same rating. ‘The strength of this rating is constrained by weak government revenue, high debt service costs, and structural factors such as governance indicators compared with other BBB-rated countries,’ Fitch Ratings said in its official report. However, the agency sees risks to policy direction given the government’s ambition to chase 8 percent growth and to increase social spending. According to Fitch, a combination of looser fiscal and monetary policy could raise risks to macroeconomic and financial stability in the medium term. In addition, Fitch notes the government’s plan to revisit the State Finance Law on the 2026 legislative agenda. On the fiscal side, Fitch projects Indonesia’s budget deficit to reach 2.9 percent of GDP in 2026, slightly above the government’s target of 2.7 percent. Pressure on the budget mainly comes from higher social spending, including the Free Nutritious Meals (MBG) programme, estimated to reach around 1.3 percent of GDP. On the other hand, the government’s capacity to raise state revenue is still considered limited. Read also: MSCI Rebalancing, Moody’s Negative Outlook, How Big Are the Market Risks?