Fitch Ratings Revises Indonesia's Debt Rating Outlook to Negative, Here Are the Reasons

Fitch Ratings has revised its outlook on Indonesia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to negative from stable, and reaffirmed the IDR rating at BBB, the Fitch report said, cited in Jakarta on Wednesday, 4 March 2026. The agency also reaffirmed that the BBB rating is supported by Indonesia’s track record of maintaining macroeconomic stability, a reasonably solid medium-term growth outlook, a relatively moderate government debt-to-GDP ratio, and adequate foreign exchange reserves (FX reserves).

There are several key indicators underpinning Fitch’s projection. First, rising policy uncertainty risk. Fitch expects the government to remain committed to keeping the fiscal deficit below the 3 percent of GDP threshold. However, the ambitious 8 percent growth target and increased social spending are seen as potentially prompting looser fiscal and monetary policy.

This risk is reflected, among other things, in plans to review the State Finance Law within the 2026 legislative priorities. If the fiscal framework, including the deficit cap, is loosened, this could materially weaken policy credibility and heighten reliance on central-bank financing.

Second, expenditure and revenue pressures. Fitch projects Indonesia’s fiscal deficit in 2026 to be around 2.9% of GDP, slightly above the government target of 2.7% and in line with the 2025 projection.

The projection is based on more conservative government revenue assumptions amid slower growth and limited impact from efforts to improve tax compliance. Social spending is expected to rise, including for the Free Nutritious Meals (MBG) programme, projected to reach around 1.3% of GDP.

On the revenue side, Fitch projects the government revenue-to-GDP ratio averaging only 13.3% in 2026-2027, well below the BBB-rated country median of 25.5%. Revenue in 2025 weakened due to suboptimal tax performance, cancellation of the VAT increase, and the transfer of state-owned enterprise dividends to the new sovereign wealth fund, Danantara.