S&P Issues Warning to Indonesia: What Are the Key Concerns?
Jakarta, CNBC Indonesia - The global rating agency S&P Global has just released a report on the impact of surging energy prices on the fiscal and external conditions of Southeast Asian countries.
In the report, S&P highlights four major countries in the region, namely Indonesia, Malaysia, Thailand, and Vietnam, which are assessed to face similar pressures if global energy volatility stemming from Middle East conflicts persists longer.
S&P explains that the fiscal and external resilience of these countries could erode if the world energy market does not normalise within the next few months. In their base case scenario, the intensity of the war is expected to peak and the effective closure of the Strait of Hormuz to begin easing in April.
However, disruptions are assessed to potentially last for months, especially if damage to energy infrastructure in the Middle East delays the recovery of oil and gas production.
S&P Issues Warning for Indonesia
Indonesia is one of the main focuses. S&P affirms that Indonesia’s current debt rating stands at BBB/Stable/A-2.
However, the agency also assesses Indonesia’s rating as one of the most vulnerable to pressure if the conflict drags on and energy market disruptions continue.
As a note, global rating agencies have indeed been paying close attention to Indonesia’s condition.
Moody’s Ratings on 5 February 2026 changed Indonesia’s sovereign outlook to negative from stable, while maintaining the rating at Baa2.
According to S&P, compared to other major developing countries in Southeast Asia, Indonesia’s credit indicators are more sensitive to weakening fiscal or external positions.
There are several pressure channels highlighted by S&P:
Higher energy prices could potentially increase the subsidy burden, thereby straining the state budget and widening the fiscal deficit.
The government’s debt interest burden could also rise if higher inflation pushes market interest rates up further.
More expensive oil imports could widen the current account deficit, adding pressure to Indonesia’s external sector.
Nevertheless, S&P also sees that Indonesia still has several buffers against pressure. The government is assessed to be attempting to limit fiscal impacts by maintaining subsidised fuel prices, while cutting some spending on the free nutritious meal programme to offset rising energy costs.
At the same time, rising commodity prices could also support state revenues.
According to S&P, these factors could help contain deficit widening and keep the budget interest payment ratio from surging too sharply. The government is also said to still want to keep this year’s fiscal deficit close to 3% of GDP.
From the external side, S&P notes that Indonesia’s exports this year are still growing, supported by stronger sales of palm oil, nickel, vehicles, and solar panels.
However, that momentum is still held back by weakening sales of energy products such as coal, crude oil, and natural gas.
If world energy prices surge again, Indonesia’s export growth could potentially be boosted and somewhat help offset the rise in oil import bills.
What About Indonesia’s Neighbouring Countries?
- Malaysia
For Malaysia, S&P assesses that the country, dubbed the Neighbouring Nation, is relatively better prepared to face global energy shocks.
The reason is that Malaysia still has substantial domestic energy production as well as a more diversified economic structure.
Indeed, energy price surges could still enlarge subsidies and burden the fiscal position. However, such increases are assessed to be partially offset by additional revenues from energy royalties and corporate taxes.
S&P assesses Malaysia’s rating as still sufficiently strong to withstand worse scenarios. On the external side, Malaysia does benefit from natural gas exports, but S&P reminds that the country remains a net importer of petroleum products.
- Thailand
For Thailand, S&P sees pressure mainly coming from the risk of economic slowdown and rising government debt if the energy crisis worsens. In a sharp energy shock scenario, Thailand’s economic growth could fall more deeply, even potentially dipping below 2% in 2026.
Nevertheless, S&P assesses that Thailand still has important cushions, namely sufficiently strong monetary and external conditions, a developing domestic financial market, and relatively low inflation. These factors are assessed to help Thailand withstand greater pressures.
S&P also highlights that although Thailand’s fiscal policy has been looser in recent years, its deficit is still considered moderate, slightly above 3% of GDP at the general government level.
Additionally, Thailand’s net government debt is around 50% of GDP, thus still providing room to absorb temporary shocks. With a deep domestic bond market, the government’s borrowing costs are also assessed to remain manageable.
- Vietnam
Meanwhile, Vietnam is assessed to still have sufficiently strong buffers to face the war’s impacts, at least under S&P’s current base assumptions. The supports are high economic growth, a rapidly expanding export sector, and a relatively light government balance sheet.
However, Vietnam remains assessed as sensitive if surges in energy import costs persist for a long time, especially if accompanied by capital outflows and weakening foreign exchange reserves.
In such a situation, Vietnam’s external liquidity position could also erode. In recent years, Vietnam has become a net importer of crude oil and refined petroleum products.
Because its economy still requires energy to sustain growth, Vietnam is likely to continue purchasing energy supplies even at high prices.
The Vietnamese government does not provide direct energy subsidies, but has suspended some taxes and added funds to the Fuel Price Stabilisation Fund to contain price increases.