Pitch and Moody's Warn of Fiscal Impact Concerns Over Indonesia's Prabowo Free School Meal Pledge

International credit rating agencies Fitch and Moody's have forecasted that the 'free' pledges of Prabowo Subianto, the frontrunner for Indonesia's next president, could negatively impact fiscal soundness.

Indonesian presidential candidate Prabowo Subianto / Photo by Yonhap News

According to Antara News and others on the 22nd (local time), Fitch stated in a report on the 20th, "Indonesia's economic policies are not expected to change significantly, but uncertainty surrounding medium-term fiscal policy appears to have increased." They particularly expressed concern over Prabowo's free school meals and milk pledge.

In this presidential election, Prabowo promised to provide free meals and milk to 82.9 million children. The budget required for 100% free school meals is estimated at 450 trillion rupiah per year (approximately 38.4 trillion KRW), which amounts to about 2% of Indonesia's gross domestic product (GDP).

He also pledged to continue the construction of the new capital, increase defense spending, and raise civil servant salaries.

Fitch pointed out that Prabowo's statement, "To implement these policies, the government must bear an increase in the national debt-to-GDP ratio," "indicates risks to the baseline fiscal outlook." However, Fitch maintained an 'BBB' sovereign credit rating with a 'stable' outlook, expecting Indonesia's fiscal deficit to remain below 3% of GDP.

Moody's also noted that if Prabowo's policies such as free school meals are implemented, "Indonesia would deviate from its conservative fiscal policies and debt ratio management." They added, "The current impact on the sovereign credit rating remains neutral, but the composition of the parliament should be closely monitored to assess policy direction and the feasibility of pledge implementation."

In response to these concerns, Prabowo's camp explained that the free school meals policy will be gradually expanded and fully implemented by 2029. They also plan to increase the effective tax burden by making the Directorate General of Taxes independent from the Ministry of Finance and placing it directly under the president to secure funding.