Indonesia retains S&P investment-grade rating and stable outlook in a win for Prabowo

INDONESIA retained its investment-grade rating and stable outlook at S&P Global Ratings, a reprieve for President Prabowo Subianto and his fiscal policy credibility after a bond market selloff in June.

S&P maintained the stable outlook and affirmed the rating at BBB, the second-lowest investment grade score. Earlier in 2026, Moody’s Ratings and Fitch Ratings cut their outlook on the country to negative, citing concerns over governance under Prabowo’s administration while keeping their ratings unchanged.

“A record of fiscal discipline over multiple administrations underpins Indonesia’s credit profile,” S&P said in a statement on Monday (Jul 13). The decision reflects expectation that the budget deficit ceiling of 3 per cent of gross domestic product will be maintained as an important policy anchor, it said.

“Finally, we got some positive news,” said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas in Jakarta. “Many market participants expected a downgrade or at least an outlook cut to negative. This should be good for sentiment.” 

The decision provides a measure of relief for Prabowo as his government seeks to rebuild investor confidence. Bond sold off in early June on concerns over the president’s interventionist economic agenda and spending plans as well as interest-rate hike expectations. 

Indonesian bonds have delivered a 10 per cent loss to dollar-based investors on a hedged basis in 2026, the worst in emerging markets after South Korea. The nation’s stock benchmark is the world’s biggest loser in 2026 with a 30 per cent slide as MSCI warned of a possible market reclassification. The rupiah is the worst performer in Asia, down almost 8 per cent.

The government is expected to keep its fiscal deficit in check by cutting spending on its free-meals programme by about a third from the initial US$16.6 billion budget, according to S&P. Meanwhile, a push to centralise control of the resources sector will boost revenue, it added.

Mildly supportive

Indonesia’s 10-year dollar bond erased some losses and was indicated 0.4 cents lower to trade at 100.9 cents to the dollar, the lowest in about a month. Stocks extended gains to close 1.9 per cent higher, while local bonds erased some losses. The currency market was already shut when the decision was released.

“This is mildly supportive for the rupiah, as it removes an immediate downgrade risk and signals confidence that the recent fiscal and external pressures are temporary and manageable,” said Christopher Wong, strategist at OCBC in Singapore.

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“Still, the impact may be limited unless this is followed by clearer fiscal consolidation and a sustained improvement in capital flows,” he said.

In contrast with the views of its peers, S&P assessed Indonesia’s policies as generally stable. Authorities have made efforts to enhance transparency through regular engagement with financial market participants and have shown flexibility in adjusting policies, it said.

Stocks pressure

MSCI in June postponed a review of Indonesian equities until November, saying it needs more time to assess whether recently announced market-transparency reforms are effective. S&P Dow Jones Indices signalled in the week ended Jul 12 that the country could eventually lose its emerging-market status if concerns over its equities market persist.

Prabowo’s leadership has been turbulent, marked by the departure of Finance Minister Sri Mulyani Indrawati and the consolidation of power in Indonesia’s corporate landscape through Danantara. The government has also seized mines and plantations and arrested government workers on corruption charges. BLOOMBERG