Jakarta. Fitch Ratings has revised Indonesia’s sovereign outlook to negative from stable while affirming its BBB investment-grade rating, citing rising policy uncertainty and concerns over the credibility and consistency of economic policymaking.

In a report released Wednesday, Fitch said the downgrade in outlook reflects growing risks stemming from increasingly centralized decision-making and uncertainty surrounding Indonesia’s policy direction. According to the agency, these factors could weaken the country’s medium-term fiscal outlook, undermine investor confidence, and add pressure to external resilience.

Despite the revised outlook, Fitch maintained Indonesia’s BBB rating, noting the country’s track record of macroeconomic stability, solid medium-term growth prospects, relatively low government debt-to-GDP ratio, and moderate external resilience.

However, the agency warned that these strengths are increasingly constrained by declining state revenues, rising interest payment burdens, and governance indicators that remain weaker than those of peer countries with similar BBB ratings.

Fitch highlighted several factors behind the outlook downgrade, including policy uncertainty, persistent spending pressures, weak government revenues, off-budget investment initiatives, governance challenges, external vulnerabilities, and the increasingly complex mandate of Bank Indonesia.

The rating agency also pointed to the government’s ambition to push economic growth to 8% while expanding social spending, warning that such policies could pose risks to macroeconomic and financial stability.

According to Fitch, any relaxation of Indonesia’s fiscal framework, including the 3% deficit cap, could undermine policy credibility and make it harder for the government to finance larger deficits without central bank support.

Fitch projected Indonesia’s fiscal deficit to reach 2.9% of GDP this year, exceeding the government’s target of 2.7%, based on more conservative assumptions about state revenue due to slower growth and limited short-term gains from tax compliance improvements.

The agency also estimated Indonesia’s government revenue-to-GDP ratio will average just 13.3% in 2026–2027, far below the BBB-rated sovereign median of 25.5%, reflecting the absence of significant measures to boost fiscal revenues.

Fitch further noted that efforts to support growth and ease social pressures following last year’s demonstrations are likely to increase government spending. This includes the Free Nutritious Meals (MBG) program, estimated to cost around 1.3% of GDP. At the same time, plans to accelerate government spending in the first half of 2026 could widen the fiscal deficit.

Fitch also highlighted uncertainty over the role of Danantara Indonesia, warning the fund could take on a larger role in financing government priority programs through debt-funded investments. Such a move, the agency warned, could reduce fiscal transparency and increase the risk of additional debt burdens for the state.

Such a development, Fitch said, could reduce fiscal transparency, create policy inconsistencies, and increase the risk of additional debt burdens for the state.

Earlier, Moody’s Ratings also revised Indonesia’s outlook to negative from stable, citing global investor concerns over policy credibility that have contributed to volatility in the stock market and the rupiah.

Meanwhile, S&P Global Ratings has maintained a stable outlook for Indonesia but warned that fiscal weakening could eventually put downward pressure on the country’s credit rating.

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