Prabowo’s team has assured the market that it will commit to the legal deficit ceiling of 3% of gross domestic product (GDP) and maintain the status quo on the debt-to-GDP ratio, after media reports speculated that the president-elect plans to revise the legal budget ceiling and may allow the debt-to-GDP ratio to rise.
“Despite these assurances, policy uncertainty is likely to remain until the next government unveils its plan in detail,” the rating agency said in a press release.
S&P expects the annual budget deficit of Southeast Asia’s biggest economy in the next three years to be higher than 2022-2024 period at 2.9% of gross domestic product (GDP), due to bigger spending plans under Prabowo.
“The incoming government has indicated that it does not intend to make legal changes to allow for higher deficits. However, given its spending plans, it would likely aim for budget shortfalls close to the legal limit of 3% of GDP,” the agency added.
Prabowo’s key campaign pledges include a 450 trillion rupiah ($27.62 billion) programme, equivalent to about 2% of GDP, to give free nutritious meals to more than 80 million recipients, including pregnant women, toddlers and students.
Other pledges include providing more housing and increasing food production. Through those plans, the president-elect aims to reach 8% GDP growth annually, from around 5% currently.
S&P, however, said Indonesia’s economic growth was expected to slow slightly to 4.9% in 2026 and 2027. Indonesia’s GDP growth was at 5.05% in 2023.
Indonesia’s revenue-to-GDP ratio in the next few years was also seen falling slightly to 14.8% of GDP from 15% in 2023, amid moderating commodity prices, such as nickel, S&P forecast.
With expectation that Prabowo’s government will be committed to the legal limits on budget deficits, S&P expects Indonesia’s debt-to-GDP ratio in the next few years to be around 39%, well below the 60% legal ceiling.
Prabowo and vice president elect, Gibran Rakabuming Raka, the eldest son of outgoing President Joko Widodo, will be sworn in this October after winning the election in February.
($1 = 16,295.0000 rupiah)
Source: Economy - investing.com
