Moody’s said on Thursday it had cut Indonesia’s credit rating outlook to negative from stable, citing reduced predictability in policymaking days after MSCI flagged transparency issues that triggered a market rout of more than $80 billion.
The change in outlook is a fresh hit to Indonesia, a $1.4 trillion G20 economy under the stewardship of President Prabowo Subianto, with investors cooling on the country due to concerns over policy uncertainty, including a widening fiscal deficit and central bank independence.
Moody’s maintained its Baa2 rating but said the shift to a negative outlook from stable reflected risks to policy effectiveness and signs of weakening governance.
Risk of eroding policy credibility
“If sustained, the trend could erode Indonesia’s long-established policy credibility, which has supported solid economic growth and macroeconomic, fiscal and financial stability,” the ratings agency said.
Indonesia’s central bank governor Perry Warjiyo said the ratings outlook cut did not mean the country’s economic fundamentals were weakening, adding its economic growth remains solid.
“Financial systems stability remains well maintained, supported by adequate liquidity, strong banking capitals, and low credit risks,” he said in a statement.
Bank Indonesia said it would strengthen policy synergy to maintain macroeconomic and financial system stability, and “coordinate with the government to strengthen communication about policy in order to maintain market confidence”.
Big growth ambitions
Indonesia earlier on Thursday reported its best economic expansion in three years in 2025 as growth accelerated more than expected in the fourth quarter on robust household spending and strong investment, according to official data.
Indonesia’s president’s office did not immediately respond to requests for comment on the move by Moody’s.
Prabowo has promised to ramp up Indonesia’s steady growth of around 5% over the last few years to 8% during his term.
Since taking power in late 2024, he has taken steps to try to achieve that, including sacking widely respected Finance Minister Sri Mulyani Indrawati, known for her fiscally conservative stance, and replacing her with pro-growth economist Purbaya Yudhi Sadewa.
Indonesia’s international bonds slipped following the Moody’s announcement. Longer-dated, dollar-denominated bonds, which had been flat for most of the trading day, were down between 0.3-0.5 cents, with many trading at their weakest level in five months, Tradeweb data showed.
Indonesia’s Finance Ministry said it “appreciates” Moody’s sustained rating, and that the government was undertaking “economic transformation” to revitalise growth.
“The government continues to ensure that all potential risks are properly managed,” the ministry said in a statement after the Moody’s outlook change.
A slew of Indonesian officials resigned on Friday after MSCI warned two days earlier that concerns over ownership and trading transparency in Indonesian stocks could prompt a downgrade to “frontier” status if the issues were not resolved by May.
Governance reforms promised
Indonesia has since promised capital market governance reforms and several measures to address MSCI’s concerns.
A negative outlook means Moody’s next move could potentially be a downgrade in ratings.
Moody’s said it would downgrade if there is a sustained shift to a more expansionary fiscal policy without accompanying revenue reform, a significant deterioration in external position due to capital outflows, or a material weakening in state companies’ health.
Indonesia is currently rated Baa2, the agency’s second-lowest rating for investment grade.
“This is a confidence test, not a credit event,” said Mohit Mirpuri, a fund manager at Singapore-based SGMC Capital.
“Moody’s is flagging execution risk rather than balance-sheet stress, and we expect the government to address governance concerns to stabilise sentiment over time,” he said.
Reuters
