S&P Keeps Indonesia's Debt Rating Stable, Cites Growth Prospects and Fiscal Prudence

S&P Global Ratings has reaffirmed Indonesia's 'BBB' debt rating, maintaining a stable outlook. The credit rating agency cited the nation's strong economic growth prospects, generally prudent macroeconomic policy settings, and a relatively light government debt burden compared to its peers as key factors supporting the rating.

S&P projects that Indonesia's economy will achieve growth in the range of 5% over the next two to three years, even amidst rising oil prices. The agency anticipates that government revenue will continue to improve throughout the current year, with the state budget deficit expected to be kept under 3% of the Gross Domestic Product (GDP).

However, S&P also pointed to several areas where Indonesia faces challenges. These include a modest GDP per capita, narrow bases for both export and fiscal revenues, and a domestic financial sector that is less deep and diversified than those in comparable nations. The agency also noted that while the fiscal deficit is under control, pressure on government debt payments remains high due to increased debt accumulation during the pandemic, rising government bond yields, and the depreciation of the rupiah.

S&P highlighted the government's efforts to manage spending, particularly by trimming the free nutritious meal (MBG) program budget. They expect a third of the initial MBG budget to be cut through adjustments to program parameters, efficiency improvements, and tighter supervision. The agency believes that sustainable revenue growth and successful government initiatives to broaden the revenue base will be crucial for improving the debt-to-GDP ratio over the next few years.

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Our ratings on Indonesia reflect the economy's robust growth prospects, generally prudent macroeconomic policy settings, and relatively light net external and government debt burden compared to peers.