Goldman Sachs, an American multinational investment bank, has downgraded Indonesia's stock rating from overweight to market weight amidst a downgrade of the 10- to 20-year government bonds from the market's favorite position to neutral. The downgrade was driven by increasing fiscal risks in Indonesia.

Goldman Sachs highlighted concerns over global trade tensions and the weakening domestic economy, especially after President Prabowo Subianto announced various strategic policies, such as the free nutritious meal program, the launch of Daya Anagata Nusantara Investment Agency (BPI Danantara), and the issuance of Housing Government Securities (SBN) to support the construction of three million homes.

As a result of these policies, Goldman Sachs projects the 2025 State Budget (APBN) deficit to reach 2.9 percent, wider than the government's target of 2.53 percent. This projection is close to the maximum APBN deficit permitted by regulation, which is 3 percent.

In the last decade, the state budget deficit has only exceeded 3 percent during the Covid-19 pandemic, namely in 2020 by 6.09 percent and in 2021 by 4.65 percent. Outside of that period, the state budget deficit has always been below 3 percent, with the highest figure in 2015 reaching 2.59 percent. Thus, the 2.9 percent projection by Goldman Sachs recorded a figure close to the maximum limit that has ever occurred outside of pandemic conditions.

Pressure on Indonesian Stock Market

The Indonesian stock market has been under pressure in recent months due to a combination of global and domestic factors. In addition to global trade tensions, the weakening domestic economy has also caused investors to withdraw their funds from the Indonesian financial market.

This was exacerbated by Morgan Stanley's decision to cut the MSCI Indonesia stock rating from equal weight to underweight in its latest research.

In its analysis, Morgan Stanley stated that Indonesia's return on equity (ROE) has experienced a downward trend, mainly due to the slowdown in the domestic cyclical sector. Along with the downgrade of stock ratings by Goldman Sachs and Morgan Stanley, the Jakarta Composite Index (JCI) also showed negative performance. On Tuesday, March 11, 2025, JCI closed down 0.79 percent to 6,545.85.

According to research by PT Pilarmas Investindo Sekuritas, the downgrade by Goldman Sachs put additional pressure on the JCI. The report stated that Goldman Sachs' decision regarding Indonesia's financial asset rating was driven by increasing fiscal risk due to President Prabowo Subianto's policies and initiatives.

Short-term impact

Professor of Finance and Capital Markets at the University of Indonesia, Budi Frensidy, assessed that the downgrade of Indonesia's stock and bond ratings by Goldman Sachs would have a negative impact in the short term. 

"In the short term, the prospects are certainly not good," Budi said as quoted by Antara on Wednesday, March 12, 2025.

Goldman Sachs emphasized that pressure on Indonesia's financial market will continue in the coming months. Factors such as global trade war sentiment and domestic economic uncertainty have the potential to make investors more cautious in investing in Indonesia.