S&P Global Ratings has issued a warning that increasing fiscal pressures, particularly higher costs associated with servicing debt, are elevating the downside risks to Indonesia's sovereign credit profile. This could potentially trigger a negative rating action. Rain Yin, a sovereign analyst at S&P Global Ratings, indicated during an Asia Pacific webinar that interest payments likely surpassed the critical 15% threshold of government revenue in the previous year.
The S&P warning comes mere weeks after Moody's Ratings shifted its outlook on Indonesia from stable to negative. Moody's cited concerns over weakening governance and growing fiscal pressures under President Prabowo Subianto's administration as reasons for its revision. Despite these concerns, S&P currently maintains a stable outlook on Indonesia’s BBB investment-grade rating. However, Yin emphasized that a sustained breach of the 15% interest payment threshold would lead to a "more negative view" on the rating.
Separately, S&P Global Ratings has highlighted that restoring investor confidence is crucial for maintaining sovereign support for Indonesia. The agency noted that sovereign ratings are susceptible to both fiscal performance and external stability, and any further deterioration due to stock market volatility could increase the likelihood of a negative rating action. This follows a January warning from index provider MSCI regarding transparency issues, which caused a market downturn and prompted Indonesian authorities to propose reforms to boost transparency and liquidity, including doubling the minimum free-float requirement to 15%.
