Fitch Ratings’ Head of Asia-Pacific Sovereigns Thomas Rookmaaker had the following observations on Indonesia’s 2024 presidential election.
The projected victory of Prabowo Subianto in Indonesia’s presidential elections, according to unofficial quick vote results, should reduce near-term political uncertainty, although the announcement of the official results will likely take another month.
The ratings agency lists its initial thoughts based on the current information available:
- Fitch expects broad economic policy continuity under a Prabowo presidency, with a continued focus on infrastructure development, including in the new capital city, and policies to support commodity down-streaming and expansion of battery and electric vehicle manufacturing.
- Policy settings to maintain macro stability should continue in the near term, as the new president will not be sworn in before October. Uncertainty will remain for the medium-term fiscal outlook, however, until the next government will present its fiscal policy priorities, likely after its inauguration.
- The house believes medium-term fiscal risks have risen, given some of Prabowo’s costly campaign pledges, including a free lunch program amounting to around 2% of GDP, and his statements that Indonesia could sustain a significantly higher government debt/GDP ratio.
- Fitch’s baseline scenario is still for Indonesia’s government debt to remain on a gradually declining path, assuming a majority in parliament will continue to prefer prudent fiscal policies and fiscal deficits of below 3% of GDP. The quick vote results indicate that for a majority in parliament a coalition of several parties would again be required, while Indonesia’s prudent fiscal track record underscores broad support across the political spectrum for adherence to the deficit ceiling.
- The ratings agency said when it last affirmed Indonesia’s ‘BBB’ rating with a Stable Outlook in September 2023, it indicated that a material rise in the public debt burden closer to the level of Indonesia’s peers, would negatively affect the sovereign credit profile.
On the other hand, a marked improvement in the government revenue/GDP ratio closer to the level of Indonesia’s peers, a policy goal stated by Prabowo during his campaign, would strengthen public finance flexibility and Indonesia’s credit profile.
