S&P Affirms Indonesia's Credit Rating, Citing Temporary Fiscal Strains

Credit rating agency S&P has affirmed Indonesia's sovereign credit ratings at BBB/A-2, indicating a stable outlook. The agency believes that recent fiscal pressures are likely temporary and can be mitigated by stronger commodity prices and government spending reductions.

This assessment stands in contrast to fellow agencies Moody's and Fitch, which had previously revised their outlooks for Indonesia to negative in February and March, respectively. Their concerns were linked to perceived reduced policymaking credibility under President Prabowo Subianto's administration, particularly in light of rising fiscal worries.

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The stable outlook also reflects our expectation that the government continues to view its 3 per cent annual deficit ceiling as an important policy anchor.

S&P's affirmation is underpinned by Indonesia's favorable growth prospects and its relatively low levels of net external and government debt. The agency anticipates a continued recovery in government revenue this year, supported by a rebound in export earnings driven by higher commodity prices. Policies aimed at boosting revenue and export earnings from the resource sector are also expected to contribute positively over time.

The stable outlook further reflects S&P's expectation that the Indonesian government will maintain its commitment to the 3% annual deficit ceiling as a key policy anchor. The agency also noted the government's flexibility in adjusting the budget, including implementing significant spending cuts, to keep the deficit within the legal limit. Indonesia's rating could face a downgrade if government debt, interest costs, or external financing needs deteriorate substantially. Conversely, an upgrade is possible if fiscal and external finances show sustainable improvement through lower deficits, stronger revenue, reduced borrowing costs, and decreased external debt.

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While it’s not time for complacency, we’ll take this as a win, and we continue to expect policy reforms and fiscal discipline to become more evident in the second half of the year, supporting a further recovery in confidence.