Indonesia retained its investment-grade rating and stable outlook from S&P Global Ratings, a decision that provides a measure of relief for President Prabowo Subianto's administration. This affirmation, announced on July 13, 2026, comes after a bond market selloff in June driven by concerns over Prabowo's economic agenda and spending plans. The rating is BBB, the second-lowest investment grade score, with S&P expecting Indonesia to maintain its budget deficit ceiling of 3% of GDP as a policy anchor. This contrasts with earlier actions by Moody's Ratings and Fitch Ratings, which cut their outlooks on Indonesia to negative in February and March, respectively, citing concerns over governance under Prabowo's administration while keeping their ratings unchanged.
S&P's decision reflects its view that Indonesia's fiscal strains are temporary and can be offset by stronger commodity prices and spending cuts. The government plans to reduce spending on its free-meals program by about a third from the initial $16.6 billion budget. Additionally, efforts to centralize control of the resources sector are expected to boost revenue. S&P highlighted Indonesia's growth prospects and relatively low net external and government debt, along with expectations for recovering government revenue and rebounding export receipts due to higher commodity prices. The agency also noted the government's flexibility in adjusting the budget to keep the deficit below the legal threshold.
The S&P affirmation contrasts with the market's recent performance, where Indonesian bonds delivered a 10% loss to dollar-based investors (hedged) in 2026, the worst in emerging markets after South Korea. The nation's stock benchmark is also the world's biggest loser in 2026 with a 30% slide, and the rupiah is the worst performer in Asia, down almost 8%. MSCI had postponed a review of Indonesian equities until November, and S&P Dow Jones Indices signaled the country could lose its emerging-market status. However, analysts like Handy Yunianto of PT Mandiri Sekuritas saw the S&P decision as positive for sentiment, as many expected a downgrade or outlook cut.
The stable outlook signals confidence that Indonesia's recent fiscal and external pressures are temporary and manageable. Christopher Wong, a strategist at OCBC, noted this is "mildly supportive for the rupiah" as it removes immediate downgrade risk. While the rupiah has been trading near its historic low of around 18,000 to the dollar, Bank Indonesia (BI) senior deputy governor Destry Damayanti believes there is significant room for the currency to strengthen with improving investor confidence. S&P also cited BI's strong operational independence and its aggressive interest rate hikes in June 2026 to defend the rupiah and manage foreign exchange reserves.
Despite the positive rating, S&P indicated that Indonesia's rating could be downgraded if government debt, interest costs, or external financing needs significantly worsen. Conversely, it could be upgraded if fiscal and external finances improve sustainably through lower deficits, stronger revenue, reduced borrowing costs, and decreased external debt. The affirmation is seen as a "win" by figures like SGMC Capital fund manager Mohit Mirpuri, who expects policy reforms and fiscal discipline to become more evident in the second half of the year, further supporting investor confidence.
