Indonesia’s short-term financing risk is deemed medium, but the following areas of structural macroeconomic vulnerabilities are worth monitoring: (i) fast-rising domestic credit and (ii) FX reserves for rupiah stabilization and external repayment. The long history of reliance on external financing has led to this vulnerability, especially under episodes of downwards pressure on the rupiah.

On the back of wider fiscal deficits and the recovery in domestic demand, real domestic credit growth increased rapidly in 2021-2022, before stabilizing at more manageable levels since. The public debt-to-GDP ratio rose from around 30% pre-pandemic to about 40% in 2022 before stabilizing, and it is expected to remain at this level. On the external side, the annual current account balance is likely to register deficits over 2025-2027, though much lower compared to the pre-pandemic long-term average. FX reserves declined through most of 2025 as the central bank intervened to support the Rupiah. As a result, import cover dropped from 10 months at end-2020 to a little less than six months, still adequate but requiring further monitoring. Meanwhile, Indonesia’s reliance on commodity exports also makes it vulnerable to a reversal in global commodity prices that could undermine investor confidence and external repayment capacity.

Indonesia’s business environment is ranked above average in our assessment of 185 economies. The Heritage Foundation’s Index of Economic Freedom survey 2025 assigns Indonesia rank 60 out of 185 economies, given its good performance in government spending, fiscal health, tax burden, monetary, trade and business freedom, though weaknesses remain in property rights, government integrity, judicial effectiveness and investment freedom. Meanwhile, the World Bank Institute’s annual Worldwide Governance Indicators survey indicates that government effectiveness, regulatory quality and rule of law have improved since 2011. Though the government has taken policy actions to achieve net-zero emissions by 2060, environmental sustainability remains in bad conditions, considering Indonesia's coal-dominated energy mix and industry reliance on natural resources.

Prabowo Subianto was elected in the 2024 Presidential elections, on a platform of following former president Joko Widodo’s footsteps. Indonesia has traditionally been inclined towards protectionism of key industries and natural resources. Over his two terms in office, Joko Widodo had pushed consensus on this issue further towards acceptance of higher levels of foreign investment, especially in industries downstream of primary goods extraction. President Prabowo Subianto is expected to continue down this path. However, recent decisions to expand the role of the military have negatively impacted his public image and populist policymaking is raising concerns over Indonesia’s long-term economic prospects. Despite recurrent protests, President Prabowo Subianto retains a dominant majority in parliament – although it is smaller than the previous government’s and thus may face more hurdles from opposition parties. The next elections will be held by 2029.