Moody’s Ratings has revised Indonesia’s sovereign credit outlook to negative from stable while affirming its Baa2 rating, citing rising concerns over policy predictability and governance under President Prabowo Subianto. The agency announced the decision on Thursday, 5th February 2026, warning that weaker policymaking clarity and communication could undermine policy effectiveness.
“If sustained, the trend could erode Indonesia’s long established policy credibility, which has supported solid economic growth and macroeconomic, fiscal and financial stability,” Moody’s said.
The outlook revision comes amid growing investor unease in the $1.4 trillion G20 economy. More than $80 billion was wiped from markets following warnings from MSCI over transparency issues in Indonesian stocks. MSCI raised concerns about ownership and trading transparency and warned of a possible downgrade to frontier market status if issues are not resolved by May.
Those warnings triggered official resignations and government pledges to improve capital market governance. Moody’s decision adds pressure on Prabowo’s administration, which has faced scrutiny since taking office in late 2024, including over a widening fiscal deficit and questions surrounding central bank independence.
Chief economic minister Airlangga Hartarto played down the outlook cut, saying ratings agencies and global markets were “yet to understand” Indonesia’s new growth strategy. Speaking at an event organised by the financial regulator in Jakarta, he said the government would engage with Moody’s to provide clarification.
“It’s true that our budget is a little different because we are spending big for the president’s programmes such as free meals, red and white cooperatives, and public services,” Airlangga said, adding that these initiatives were designed to revitalise rural economies. He said growth would also be driven by the sovereign wealth fund Danantara Indonesia through investment rather than reliance on the state budget alone.
Central bank governor Perry Warjiyo said the outlook change did not reflect weakening fundamentals. “Financial systems stability remains well maintained, supported by adequate liquidity, strong banking capitals, and low credit risks,” he said. Bank Indonesia pledged closer coordination with the government and improved policy communication to maintain market confidence.
The Finance Ministry welcomed the affirmation of the Baa2 rating and reiterated its commitment to managing risks while pursuing economic transformation. Prabowo’s office did not respond to requests for comment.
Prabowo has set a target of raising annual economic growth from about 5 percent to 8 percent. To support this goal, his administration expanded social programmes including Free Nutritious Meals and Affordable Housing, funded through budget reallocations and spending cuts, including to infrastructure maintenance.
Moody’s flagged fiscal risks linked to these expansions, citing Indonesia’s weak revenue base. It also highlighted uncertainty surrounding Danantara’s governance. The fund oversees more than $900 billion in state owned enterprise assets, equivalent to roughly 60 percent of 2025 nominal GDP.
Debates over raising the 3 percent fiscal deficit ceiling, alongside discussions on Bank Indonesia’s mandate and natural resource policies, have further unsettled investors. Moody’s also pointed to declining scores in Worldwide Governance Indicators for government effectiveness and regulatory quality, as well as rising public protests over income growth, jobs, and living standards.
Indonesia reported its strongest growth in three years in 2025, with fourth quarter expansion beating expectations on the back of household spending and investment. Some economists, however, have questioned the data, citing falling tax revenues and stagnant foreign direct investment.
Markets reacted negatively to Moody’s move. Longer dated dollar denominated Indonesian bonds fell between 0.3 and 0.5 cents to five month lows, according to Tradeweb. The rupiah’s one month non deliverable forwards weakened by up to 0.6 percent before paring losses.
Mohit Mirpuri of SGMC Capital described the move as “a confidence test, not a credit event,” saying Moody’s was highlighting execution and governance risks rather than balance sheet stress.
Lionel Priyadi of PT Mega Capital warned the outlook cut could push the rupiah towards 17,000 per dollar. A negative outlook signals the possibility of a downgrade if fiscal expansion continues without revenue reforms, external positions weaken due to capital outflows, or state owned enterprises deteriorate financially.
Despite the risks, Moody’s said Indonesia’s Baa2 rating remains supported by its natural resources, favourable demographics, and medium term growth potential of around 5 percent.
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