Key Takeaways From Meeting With Fitch Rating
Fitch’s last public stance on Indonesia remains BBB/Stable, but its published sensitivities are tilted to the downside, it explicitly citing risks from a material rise in public debt and a sustained decline in FX reserves driven by confidence outflows and/or heavy intervention. Taken together, that signals asymmetric near-term risk, which limits the scope for spread compression unless clearer policy anchors reduce uncertainty. The key constraint is fiscal affordability, not the debt stock: Indonesia’s revenue/GDP is in the mid-teens versus BBB peers in the low-20s, and its interest-to-revenue burden is high (about 18% in 2025 versus around 9% for similarly rated peers), making the credit more exposed to rate shocks and risk-premium spikes. Fitch also treats the legal 3% deficit ceiling as a central credibility anchor, so any perceived dilution, such as reframing the cap annually, could be negative even before a formal breach, particularly if spending pressures are managed through reallocations without durable revenue reform. Finally, policy credibility transmits into both FX dynamics and funding costs: if BI independence is tested, FX volatility could rise and prompt intervention-driven, persistent reserve drawdowns, which aligns most directly with Fitch’s stated downside trigger on external buffers.