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Indonesia’s financial sector has been flourishing over the past half decade. The COVID-19 pandemic period, while being a time of austerity for most sectors, led to revolutionary innovations in Indonesia’s financial services industry, particularly in fintech. From December 2020 to December 2022, total assets of the fintech sector grew by 48.54 percent from 2020 to 2022. This growing trend continued even after the pandemic lockdowns ended, as total assets in fintech grew by 30.8 percent from December 2022 to December 2023.
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Finance
Indonesia’s financial sector has been flourishing over the past half decade. The COVID-19 pandemic period, while being a time of austerity for most sectors, led to revolutionary innovations in Indonesia’s financial services industry, particularly in fintech. From December 2020 to December 2022, total assets of the fintech sector grew by 48.54 percent from 2020 to 2022. This growing trend continued even after the pandemic lockdowns ended, as total assets in fintech grew by 30.8 percent from December 2022 to December 2023.
With fintech paving the way forward, traditional banking followed suit by revolutionizing its services. From 2022 to 2023, the banking industry’s fund distribution increased by 6.28 percent, source of funds increased by 6.33 percent, and total assets in the industry grew by 6.98 percent, reaching a total of US$8.22 trillion. Moreover, even regional banks have been benefitting from this wave of innovation. For the same period from 2022 to 2023, the regional banking sector saw a 7.67 percent in distributed funds, an 8.08 percent increase in source of funds, and a 7.52 percent increase in total assets, reaching a total of US$137.96 billion.
Innovations in Indonesia’s finance sector extend beyond financial services. On September 2023, the Indonesian monetary authority, Bank Indonesia (BI), introduced three pro-market monetary instruments that function as short-term fixed income securities with high coupon rates. The three instruments, SRBI, SUVBI, and SUVBI, were able to collect Rp 409 trillion (US$25.2 billion), US$2.31 billion, and US$387 million, respectively.
Particularly in the case of the SRBI, this instrument represented an innovative way to attract capital flow from abroad during a period of high credit costs and slow investment. Approximately 20.77 percent, or Rp 85.02 trillion (US$ 5.26 billion), of the total outstanding SRBI were owned by non-Indonesian residents, underscoring the SRBI’s success as a monetary instrument.
Even when compared to other countries in the same region, the Indonesian finance sector stands out for its stability against fluctuations. Throughout 2023, the global cost of credit was high due to hawkish Fed policies made to curb US inflation, resulting in a stagnation of capital flow on a global scale. Entering the second quarter of 2024, the composite index of many Southeast Asian countries such as Singapore and Thailand recorded price decreases compared to the same period last year, reaching -3.96 percent and -13.9 percent on the Straits Times Index (STI) and the Bangkok SET index, respectively. Meanwhile, the Jakarta Stock Exchange Composite Index (JKSE) recorded a price increase of 5.18 percent for the same one-year period.
In summary, the Indonesian financial sector stands out for its stability and consistency, maintaining growth through innovation even during periods of austerity or global uncertainty. This consistency is also reflected in its GDP, which grew by 7.4 percent from 2022 to 2023, contributing roughly 4.16 percent to the national GDP in 2023.
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Fitch Ratings recently revised Indonesia’s sovereign outlook from stable to negative, although it maintained the country’s BBB investment-grade rating. Fitch highlighted global geopolitical tensions and President Prabowo Subianto ’s free nutritious meal program as potential fiscal risks. While the government insists the massive free meals budget will remain and promises to maintain fiscal discipline, questions arise over whether fiscal policy is being designed primarily for economic stability and public welfare, or whether it is driven by political considerations.
Fitch outlined several reasons for the outlook revision, particularly concerns over policy credibility and governance. While the agency still expects the government to comply with the fiscal deficit ceiling of 3 percent of GDP, it notes growing tension between this commitment and the administration’s ambitious target of achieving 8 percent economic growth.
At the same time, external risks are mounting. Conflict in the Middle East has pushed global oil and gas prices upward, potentially increasing Indonesia’s fiscal burden through higher energy costs and subsidy pressures. Finance Minister Purbaya Yudhi Sadewa estimates that the budget deficit could widen to around 3.6 percent of GDP if oil prices rise above US$90 per barrel, while the 2026 state budget assumes a price of $70 per barrel. Since the Iran war began, oil prices have been hovering around $100 per barrel.
A second concern is growing fiscal pressure. Expanding social spending and development ambitions are unfolding at a time when government revenue remains structurally low, projected at only around 13.3 percent of GDP in the coming years. This figure is far below the median among countries with a similar BBB rating. The decline in state revenues in 2025 was driven by weak tax collection, the cancellation of most planned value-added tax rate increases and the permanent transfer of 0.4 percent of GDP in state-owned enterprise dividends to Danantara.
While efforts to improve tax compliance may gradually strengthen revenue collection, the impact is unlikely to be significant in the short term, leaving fiscal space constrained. Compounding these concerns are discussions about revisiting the fiscal framework, including the possibility of relaxing the long-standing 3 percent deficit ceiling.
This tension becomes even more visible in the government’s insistence on maintaining the free meals program despite tightening fiscal space. While improving child nutrition is an important objective, a program estimated to cost Rp 355 trillion ($21.5 billion), or 1.3 percent of GDP, inevitably raises questions about prioritization and sustainability. Earlier this year, Moody’s had already warned about the fiscal implications of Indonesia’s expanding social programs, and Fitch’s latest outlook revision reinforces those concerns.
Economists have suggested reallocating spending across several large programs, including free meals, the Red and White Village Cooperative initiative and the food estate program, rather than raising subsidized fuel prices to ease fiscal pressure.
In an interview with Reuters, Finance Minister Purbaya Yudhi Sadewa said the free meals budget could be scaled back, potentially saving the country about 100 trillion rupiah ($6 billion). Not long after, however, he stated that the government would not cut the free meals program and would instead eliminate unproductive spending, citing repeated procurement proposals such as vehicle purchases as examples. Some economists argue that fiscal adjustment will require more than trimming administrative costs.
Taken together, Fitch’s warning reflects broader concerns about the balance between fiscal ambition and fiscal capacity. Indonesia continues to maintain relatively strong economic fundamentals and moderate debt levels, but fiscal space remains constrained by structurally low revenues and rising spending commitments.
At the same time, global uncertainty, from geopolitical tensions to volatile commodity prices, adds further pressure to the government’s budget management. In this context, maintaining credibility in fiscal policy becomes increasingly important for preserving investor confidence and macroeconomic stability.
