Moody’s Ratings MCO, a global credit-rating agency, remains concerned about Indonesia’s policy direction and fiscal sustainability as risks to the country’s credit profile continue to build. Martin Petch, a vice president in Moody’s sovereign risk division, said the balance of risks has become “a little bit more negative” since the agency lowered Indonesia’s outlook to negative in February. He pointed to rising subsidy costs following the Iran war, which have placed additional pressure on Indonesia’s fiscal position for this year and next year. These concerns have added to investor unease over President Prabowo Subianto’s economic agenda, including questions surrounding fiscal discipline, central bank independence and the government’s expanding role in major sectors. Indonesian bonds, the rupiah and stocks have consequently ranked among the region’s weakest-performing assets this year.
Moody’s identified PT Danantara Sumberdaya Indonesia, a government agency established in May to oversee raw-material exports, as another area of potential risk. Petch said uncertainty around the agency’s mandate has increased investor concerns about deeper state involvement in the economy. Moody’s also highlighted Indonesia’s narrow revenue base, which may restrict the government’s ability to finance major initiatives such as the free lunch program. Indonesia has reduced the program’s budget as energy subsidy costs have increased and is reviewing spending to identify further savings. These measures are intended to keep the country’s 2026 budget deficit target at 2.85% of gross domestic product and within legal limits, although Moody’s said there has been little progress in expanding the government’s revenue base.
Not all rating agencies share the same level of concern. S&P Global Ratings, an international credit-rating provider, recently maintained Indonesia’s investment-grade rating and stable outlook, even after Moody’s and Fitch Ratings, another global credit-rating agency, lowered their assessments. Investors may therefore view the next six to 12 months as a critical period for Indonesia’s credit outlook. Moody’s plans to monitor foreign-exchange reserve adequacy, policy credibility, the financial health of state-owned enterprises and governance surrounding Danantara. Petch indicated that the direction of policy will remain an important factor, while a substantial increase in fiscal spending without matching revenue reforms could place further pressure on Indonesia’s credit profile and investor sentiment toward the country’s assets.