Indonesia: Thoughts on S&P‘s surprising decision to keep the rating outlook at "stable"

Research evidence excerpt

Indonesia: Thoughts on S&P‘s surprising decision to keep the rating outlook at "stable"

are temporary and could be mitigated by

eroding Indonesia's long-established policy could weaken medium-term fiscal outlook higher commodity prices and expenditure

credibility. and undermine investor sentiment. cuts.

Fiscal risks Greater focus on public spending to drive Fiscal deficit forecast at 2.9% of GDP in Government plans to cut spending to

growth poses fiscal risks given Indonesia's 2026 driven by higher social spending, with keep deficits under 3% of GDP despite

weak revenue base and expanding social subdued revenue intake averaging 13.3% higher energy costs, with revenue growth

programs. (well below BBB median of 25.5%). providing additional fiscal space.

Danantara and Raises uncertainties regarding governance Uncertainty remains over whether Danantara has changed the state-owned

centralization of and potential contingent liabilities for the Danantara could expand over time to sector by consolidating and

commodity sovereign. encompass quasi-fiscal activities through trimming non-core business lines. S&P

exports leveraged investments to support expects limited contingent liabilities from

government policy priorities, potentially SOEs and do not consolidate the debt of

reducing fiscal transparency, policy the SOEs and Danantara with

consistency and increasing contingent government debt. Government policies

liability risks. on down-streaming and exerting greater

control over the minerals

and resources sector could potentially

increase growth in government revenue

and export earnings.

External risks Policy uncertainty and shifts in resources The current account deficit will widen to External metrics are deteriorating due to