S&P Affirms Indonesia's Credit Rating, but Reform Momentum Remains Critical

The Indonesian Business Council (IBC) views S&P Global's decision to affirm Indonesia's sovereign credit rating at BBB with a stable outlook as an important recognition of the country's economic resilience. The affirmation reinforces Indonesia's investment-grade status and reflects continued confidence in the credibility of Indonesia's fiscal and macroeconomic policy framework despite higher energy prices, elevated global interest rates, and growing global economic uncertainty.

From IBC's perspective, the rating affirmation should be interpreted as recognition of Indonesia's resilience in managing current challenges, rather than as evidence that underlying vulnerabilities have been resolved. The agency also noted that Indonesia's fiscal outlook has become more uncertain than usual and expects the current account to return to a modest deficit, although under its baseline scenario, both fiscal and external indicators are projected to remain broadly stable.

Market developments following the announcement suggest that investors continue to exercise caution despite the rating affirmation. The yield on Indonesia's 10-year government bond rose from 7.184 percent prior to the announcement to 7.259 percent the following day, then edged up to 7.267 percent by the end of the week. At the same time, the government bond yield curve remained inverted across maturities from 52 weeks to three years, indicating that investors continue to price in elevated uncertainty.

In the foreign exchange market, the rupiah showed signs of strengthening, although it remained above Rp18,000 per U.S. dollar, appreciating from Rp18,131 per U.S. dollar on Monday to Rp18,041 on Thursday. Equity market sentiment also showed signs of improvement. After recording foreign net sales of Rp830 billion in a single trading session, the Indonesia Stock Exchange (IDX) posted foreign net inflows of Rp1.2 trillion on Thursday. Over the same period, renewed geopolitical tensions surrounding the Strait of Hormuz underscored the persistence of external risks. Domestically, the Indonesia Stock Exchange's announcement of companies classified under its High Shareholding Concentration (HSC) criteria marked a positive step toward strengthening market governance and transparency.

"S&P's assessment should not lead to complacency. Beyond S&P's baseline assessment, IBC believes that several structural challenges affecting Indonesia's external sector have yet to show meaningful improvement. The current account deficit remains a structural vulnerability, while capital flows have become increasingly sensitive to shifts in global risk sentiment, including geopolitical developments. Looking ahead, strengthening competitiveness, improving the quality of the investment climate—including governance and market integrity in Indonesia's capital market—and maintaining policy consistency will be essential to reinforce Indonesia's external resilience and sustain investor confidence," said Chief Economist IBC Denni Purbasari

Looking ahead, preserving Indonesia's investment-grade status will require more than sound macroeconomic management. It will also depend on continued structural reforms that strengthen productivity, improve the quality of public expenditure, enhance regulatory certainty, diversify exports, and foster a more competitive investment environment. These reforms are essential not only to preserve Indonesia's sovereign credit profile, but also to attract long-term investment, expand productive capacity, and generate higher-quality employment.

Ultimately, sovereign credit ratings are an important measure of macroeconomic resilience. But the true test of economic success is whether that resilience translates into more productive jobs, higher real wages, and sustained improvements in people's living standards.