Fund Manager highlights risk of Indonesia's fiscal deficit after S&P warning

Bloomberg Technoz, Jakarta - Several fund managers are paying close attention to Indonesia's fiscal deficit after rating agency S&P Global Ratings warned of the risk of energy subsidies amid the escalating Middle East conflict.

Citing S&P's latest report published Tuesday (April 14, 2026), the global rating agency assesses Indonesia's debt rating as the most vulnerable in Southeast Asia if the Middle East conflict continues for a longer period.

This is because the surge in energy prices has the potential to widen the current account deficit due to increased crude oil imports, while simultaneously squeezing fiscal space due to swelling subsidies.

Yekti Dewanti, Head of Investment & Research Division at BNI Asset Management (BNI AM), believes S&P's warning is an important signal that all market players must respond to cautiously.

"Assuming an ICP price of US$86 per barrel, an additional subsidy requirement of Rp200 trillion is estimated. This could widen the fiscal deficit in 2026 to minus 2.96% of GDP," Yekti told Bloomberg Technoz on Friday (April 17, 2026).

This oil price assumption has recently had the potential to drive up inflation, which in turn drives up bond yields.

This scenario was recently evident in the decline in bond prices as of March 2026, with the yield on 10-year US Treasury bonds increasing from 4.16% at the end of December 2025 to 4.3% as of April 2026.

The yield on 10-year government bonds also increased from 6.08% at the end of December 2025 to 6.58% as of April 2026.

"Furthermore, the widening fiscal deficit, which could affect Indonesia's bond rating outlook, is expected to maintain a defensive stance in bond portfolio management," said Yekti.

Similarly, Harry Su, Managing Director of Samuel Sekuritas Indonesia, assessed that the risk of a recent fiscal deficit has spread to the foreign exchange market.

The rupiah, Harry said, hit a record low against the Singapore dollar at around Rp13,500 per SGD in mid-April 2026.

"This weakening risks triggering higher inflation and forcing Bank Indonesia to maintain high interest rates for a longer period," Harry said.

Government Debt

Amidst massive financing needs, the government's foreign debt rose to US$215.9 billion in February.

This increase brings Indonesia's foreign debt to Gross Domestic Product (GDP) ratio to 29.8%, with long-term debt dominating, accounting for 84.9% of total foreign debt.

In terms of budgetary burdens, the weakening of the rupiah to Rp17,000 per US dollar will make interest and principal payments on foreign currency debt more expensive.

Josua Pardede, Chief Economist at Bank Permata, estimates that the government's burden on the same dollar debt would increase by 6.25% if the rupiah weakened from Rp16,000 to Rp17,000 per US dollar.

Furthermore, rupiah depreciation also impacts risk perception, especially when it occurs simultaneously with rising yields and the high cost of issuing new debt.

"A persistently weak rupiah will put even more strain on the state budget, interest costs, and investor sentiment," said Josua.

Panin Asset Management Director Rudiyanto believes the current government is too aggressive in its debt policy. This trend has recently attracted the attention of investors and global rating agencies.

"Whether there's war or not, the current government appears too aggressive in its debt policy," said Rudiyanto.

Purbaya's Maneuver

A few days after the S&P report, Finance Minister Purbaya Yudhi Sadwa revealed that the global rating agency still maintained its BBB rating outlook for Indonesia.

This means, following Purbaya's claim, S&P Global Ratings still views Indonesia as a viable investment destination with a relatively low risk of default.

Purbaya stated that the current S&P report was circulated before his meeting with the international rating agency. Purbaya had just met with S&P on Tuesday (April 14, 2026) in Washington, D.C.

"The stable BBB rating means we are not in a weak fiscal position. It's possible that S&P had the rating before we met or discussed it last Tuesday," Purbaya said in an official statement quoted on Thursday (April 16, 2026).

During the meeting, S&P reportedly inquired in detail about Indonesia's fiscal condition and deficit in 2025 and this year.

They wanted to learn more about whether Indonesia could consistently maintain the 2026 State Budget (APBN) deficit below 3% of Gross Domestic Product (GDP).

On the other hand, Purbaya mentioned that S&P was paying closer attention to the debt-to-tax revenue ratio. However, Purbaya assured them that the situation was still manageable as it had not yet reached a dangerous level.

"So, we will make improvements going forward in accordance with the improvement in tax and excise collection, as we have restructured the tax and excise organization for better and more effective performance," he explained.

Furthermore, Purbaya also revealed that in the first two months of 2026, domestic tax growth was quite encouraging, increasing 30% compared to the same period last year.
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