S&P Global Ratings has reaffirmed Indonesia's credit rating at BBB with a stable outlook. However, the agency has raised concerns about fiscal uncertainties stemming from the incoming government led by Prabowo Subianto. Prabowo's team has assured the market that they will adhere to the legal deficit ceiling of three per cent of gross domestic product (GDP) and maintain the current debt-to-GDP ratio. Recent media reports speculated that Prabowo might revise the budget ceiling and allow the debt-to-GDP ratio to rise, but the rating agency remains cautious. "Despite these assurances, policy uncertainty is likely to remain until the next government unveils its plan in detail," the rating agency said in a press release. The agency predicts that Indonesia's annual budget deficit over the next three years will exceed the 2022-2024 period, reaching 2.9 per cent of GDP due to Prabowo's ambitious spending plans. Although the incoming government aims to avoid legal changes that would permit higher deficits, it is expected to operate close to the three per cent GDP limit. Prabowo's campaign promises to include a substantial programme worth 450 trillion rupiah ($27.62 billion), equivalent to approximately two per cent of GDP. This programme aims to provide free nutritious meals to over 80 million recipients, including pregnant women, toddlers, and students. Additionally, Prabowo plans to boost housing availability and enhance food production, with the ultimate goal of achieving eight per cent annual GDP growth up from the current five per cent. Despite these ambitious goals, S&P projects a slight slowdown in Indonesia's economic growth. The GDP growth rate is expected to dip to 4.9 per cent in 2026 and 2027, down from 5.05 per cent in 2023. Commodity prices, particularly nickel, are moderating, impacting the country's revenue-to-GDP ratio. S&P forecasts this ratio to decrease slightly from 15 per cent in 2023 to 14.8 per cent in the coming years. However, with confidence that Prabowo's administration will adhere to legal budget limits, S&P anticipates Indonesia's debt-to-GDP ratio to remain well below the 60 per cent ceiling. The expected ratio for the next few years is around 39 per cent. Prabowo Subianto and vice president-elect Gibran Rakabuming Raka, the eldest son of outgoing President Joko Widodo, are set to be sworn in this October following their victory in the February election. Attribution: Reuters
