Too Much Debt: Fitch Ratings Downgrades Indonesia's Rating Outlook
Fitch Ratings, the global credit rating agency, has cut Indonesia’s debt outlook from stable to negative on Wednesday, 4 March 2026. Fitch projects Indonesia’s government debt-to-GDP ratio will rise to 41% in 2026, up from last year’s 40.46% of GDP and debt of Rp9,637.9 trillion. Nevertheless, Fitch maintained Indonesia’s credit rating at BBB, in the investment-grade category.
Fitch highlighted the government’s debt-service burden as high. In 2025, interest payments are projected to account for 17% of total government revenue, among the highest in BBB-rated countries.
“The revision of the outlook to negative reflects the increasing policy uncertainty and concerns about potential erosion of consistency and credibility of Indonesia’s policy mix,” Fitch Ratings said in a statement published on Wednesday (4 March). The rating action is seen as potentially weakening mid-term fiscal prospects, undermining investor sentiment, and putting pressure on external buffers.
Conversely, the affirmation of the BBB rating reflects Indonesia’s track record of macroeconomic stability, relatively solid medium-term growth, a moderate debt-to-GDP ratio, and externally adequate buffers.
However, Fitch notes that the move remains constrained by weak revenue collection, high debt-service costs, and structural factors such as governance indicators relative to other BBB-rated countries.
Fitch also notes pressure on revenue mobilisation. It projects the government revenue-to-GDP ratio to average just 13.3% in 2026-2027, far below the BBB country median of 25.5%. This occurs amid the absence of significant steps to raise revenue.
Revenue weakened in 2025 due to weak tax collection, the near-complete cancellation of a planned 1 percentage-point VAT increase, and the permanent transfer of around 0.4% of GDP in dividends from state-owned enterprises to the newly established sovereign wealth fund, Danantara.
Even though there are ongoing efforts to strengthen tax compliance, Fitch does not expect these steps to yield material revenue gains in the short term, leaving the government’s fiscal space constrained. (E-3)
Moody’s Investors Service lowered Indonesia’s outlook from stable to negative, but retained the rating at Baa2.
Entering June 2025, the debt ratio had risen slightly to 39.86%, with loan liabilities amounting to Rp1,157.18 trillion and government securities (SBN) worth Rp7,980.87 trillion.
The government decided not to raise personal income tax (PPh 21) for employees despite IMF proposals, in order to safeguard purchasing power and sustain economic growth momentum.
Bright Institute’s Awalil Rizky highlighted the lack of openness in state financial information. The 2025 APBN Kita release no longer presents the government’s debt position on a monthly basis.
The essence of debt management lies not in the size of the ratio but in the extent to which debt creates sustainable economic value.
As of the second quarter of 2025, or end-June 2025, government debt stood at Rp9,138.05 trillion, equivalent to 39.86% of GDP.
The government’s plan to add Rp781.87 trillion to the 2026 APBN is seen as the largest debt-raising by the government since the post-pandemic period.