Fitch Ratings Flags Risks to Investor Confidence and Reserves in Indonesia

Fitch Ratings has highlighted the risk of declining investor confidence and foreign exchange reserves in Indonesia. The agency stated that a sharp and sustained drop in reserves could add pressure to the sovereign debt rating. Fitch projects Indonesia’s foreign exchange reserves will cover 4.9 months of external payments in 2026, slightly below the ‘BBB’ rated median of 5.0 months. As of the end of May, reserves stood at US$144.9 billion, equivalent to 5.6 months of import cover. In its analysis, Fitch noted that foreign exchange intervention by Bank Indonesia has reduced reserves and absorbed rupiah liquidity, thereby tightening domestic funding conditions. This has contributed to a gradual increase in the net short foreign currency position, which reached nearly US$27 billion at the end of May. Fitch indicated that foreign currency needs could rise in the future. The agency also highlighted the government’s policy to centralise exports through PT Danantara Sumberdaya Indonesia (DSI). Fitch stated that greater state intervention in commodity exports could weaken investor sentiment and burden medium-term growth prospects if it significantly hampers foreign direct investment inflows. Stricter oversight of the country’s natural resource sector could also disrupt commodity export flows. However, Fitch added that if the export policy through DSI is implemented effectively and supported by strong governance to boost investor confidence, it could gradually strengthen government revenue receipts from strategic commodity sectors and support foreign exchange reserve accumulation.