S&P Affirms Indonesia's Credit Rating as Stable, Predicts Economic Recovery

Credit rating agency S&P has affirmed Indonesia’s sovereign credit ratings at BBB/A-2, maintaining a “stable” outlook for the country’s economy. This announcement comes as a relief for the Prabowo administration, whose economic policies have raised concerns among international investors. S&P stated that recent fiscal strains, attributed to “high energy prices, higher interest rates, a weak currency, increased policy uncertainties, and accumulated debt,” were likely temporary. The agency believes that Indonesia’s policies to boost revenue and export earnings from the resource sector should lift revenue over time, supporting the rating outlook. “The stable rating outlook reflects our expectation that government revenue will continue to recover this year and export receipts will rebound with higher commodity prices,” S&P said. Since taking office in October 2024, the Prabowo administration has pursued high-spending populist social policies, including a multibillion-dollar free meal program, pushing the budget toward its 3 percent annual deficit ceiling. The former general has also increased the state’s involvement in the Indonesian economy to maximize returns from natural resources and international trade. These policies, along with the dismissal of respected Finance Minister Sri Mulyani Indrawati last year, have unsettled investors and undermined Indonesia’s hard-won reputation for fiscal conservatism. Earlier this year, fellow rating agencies Moody’s and Fitch downgraded their debt rating outlooks for Indonesia to negative, citing the unpredictable and fiscally expansive nature of economic policymaking under Prabowo. Fitch pointed to the “increasing policy uncertainty and erosion of Indonesia’s policy mix consistency and credibility” and the “growing centralization of policymaking authority” under Prabowo. The country’s stock market has also attracted negative scrutiny. In January, global index provider MSCI threatened to downgrade Indonesia to “frontier market” status due to transparency concerns in its stock market, including high ownership concentration in certain companies and limited “free float” of tradeable shares. Consequently, Indonesia’s main stock index has become one of the worst-performing in Asia in 2026. In response to MSCI’s threat, the Indonesian government announced a list of proposed reforms, including doubling the minimum free float for listed companies to 15 percent. Top executives at the exchange and regulatory body also stepped down. As a result, MSCI has extended its review of Indonesia’s “emerging” market economy status until November. Concerns have been raised about the slide in Indonesia’s fiscal management and the weakening of the rupiah. The currency is now trading at over 18,000 to the U.S. dollar, compared to around 15,500 at the time of President Prabowo’s inauguration, making it worth less against the dollar than during the 1997-1998 Asian financial crisis. S&P noted several factors that could prompt a downgrade, such as a sharp increase in government debt or a structural overhaul in export receipts. However, the agency expressed confidence that the Indonesian government “continues to view its 3% annual deficit ceiling as an important policy anchor.” S&P specifically cited recent government pledges to cut spending, including on the Free Nutritious Meals Program, to keep the deficit below this threshold. In response, Reuters reported that the Indonesian government and Bank Indonesia stated the rating reflects global investor confidence in the country’s economic management, which would likely help support the rupiah.