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Investing.com -- Fitch Ratings has confirmed Indonesia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ’BBB’, maintaining a Stable Outlook. This rating is reflective of the country’s positive medium-term growth forecast and low government debt-to-GDP ratio. However, it is constrained by a weak government revenue intake and lagging structural features such as GDP per capita and governance indicators.
Fitch predicts Indonesia’s real GDP to grow by 5.0% in 2025, outperforming many ’BBB’ category peers. This growth is expected to be driven by strong domestic demand, bolstered by public spending on social assistance and infrastructure projects. Private investment is also anticipated to remain strong, encouraged by modest monetary policy easing, reduced policy uncertainty post-elections, and continued downstreaming activities.
However, growth is forecasted to ease slightly to 4.9% in 2026 due to increased US tariffs and weaker demand from China, which could impact Indonesia’s exports. Despite this, resilient domestic demand should help mitigate some of the pressures.
The Indonesian government has set an ambitious growth target of 8% by 2029, which Fitch believes may be challenging without significant structural reforms. The government’s key policy agenda includes a free meals program, initiatives for food and energy self-sufficiency, and investment through the newly launched Danantara sovereign wealth fund (SWF), which was established on February 24, 2025.
Inflationary pressure is expected to remain modest, with the headline Consumer Price Index (CPI) falling for the first time in over two decades by 0.1% year-on-year in February 2025. Fitch projects the headline CPI to rise to 2.7% by the end of 2025, staying within the current official inflation target band.
Fitch also forecasts the fiscal deficit to rise to 2.5% of GDP in 2025, up from 2.3% in 2024. Despite this, the fiscal outlook remains uncertain, particularly over the medium term. The government’s efforts to enhance spending efficiency may face challenges, potentially leading to underspending.
The general government debt is expected to decline moderately to 39.1% of GDP in 2028 from 40.4% in 2025. This is based on the assumption that the government will continue to adhere to the deficit ceiling of 3% of GDP in the medium term.
The establishment of the Danantara SWF is part of the government’s plans to consolidate its state-owned enterprise (SOE) portfolio. Initial plans involve using budget savings and SOE dividend payments to finance national projects, such as downstream industries, renewable energy, food production, affordable housing, and AI.
Indonesia’s foreign exchange (FX) reserves increased by 7.3% year-on-year to $154.5 billion in February 2025, equivalent to about 5.6 months of current-account payments. This increase aligns with the ’BBB’ median level.
Fitch assigns Indonesia a score equivalent to a rating of ’BBB’ on the Long-Term Foreign-Currency (LT FC) IDR scale. The country ceiling for Indonesia is ’BBB’, reflecting no significant constraints against capital or exchange controls being imposed that would prevent or significantly impede the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments.
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