S&P Reaffirms Indonesia's BBB Rating, Flags Policy Execution Risks
S&P Reaffirms Indonesia’s BBB Rating, Flags Policy Execution Risks
Jakarta. S&P Global Ratings on Monday affirmed Indonesia’s ‘BBB’ long-term and ‘A-2’ short-term sovereign credit ratings with a stable outlook, saying the country’s weakened fiscal and external positions are temporary and should improve as commodity prices recover and the government maintains fiscal discipline.
“The outlook on the long-term rating is stable, reflecting our expectation that the deterioration in fiscal and external metrics is temporary and will reverse with higher commodity prices and a more stable pace of policy changes,” S&P said. The agency expects government revenue and export receipts to recover this year, while policies to boost revenue from the resource sector should strengthen the country’s fiscal position over time if implemented predictably and effectively.
S&P said Indonesia’s sovereign rating continues to be supported by robust economic growth prospects, prudent macroeconomic management, and relatively low government and external debt compared with similarly rated peers.
S&P then forecasts the Indonesia economy to expand 5.1% in 2026 before averaging 4.9% annually between 2026 and 2029, despite higher fuel prices, elevated interest rates, and persistent external uncertainties.
The agency said Indonesia’s financial markets came under pressure in the first half of the year, with the rupiah weakening by around 7% against the US dollar and the benchmark stock index losing more than 30% of its market capitalization despite resilient economic growth. It attributed the divergence to heightened external risks, including the Middle East conflict and the closure of the Strait of Hormuz, as well as domestic policy uncertainty.
“The pace of policy changes and uncertainties over implementation could affect investor confidence and weigh on currency and financial markets,” S&P said.
S&P also added that government policies to tighten oversight of the mineral and resource sector could eventually lift state revenue and export earnings. It noted that Danantara Sumberdaya Indonesia (DSI) is expected to reshape the commodity export sector by helping curb practices such as under-invoicing and transfer pricing, while warning that policy execution remains a key risk.
Despite higher spending on energy subsidies, S&P expects Indonesia to keep its fiscal deficit below the legal ceiling of 3% of GDP through expenditure cuts and stronger revenue collection as commodity prices recover. Revenue rose 21% in the first six months of the year from a year earlier, supported by improving tax and non-tax receipts, according to the report.
“On balance, we expect the fiscal deficit to remain just under 3% of GDP this year. A record of fiscal discipline over multiple administrations underpins Indonesia’s credit profile,” S&P said.
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