Moody's has moved Indonesia's credit rating outlook from stable to negative, while leaving the sovereign's Baa2 rating unchanged, the ratings agency said on Thursday. The shift reflects what Moody's described as a recent decline in the predictability of policymaking and indicators of weakening governance that followed a wave of market stress sparked by questions over capital-market transparency.
The decision arrived days after MSCI flagged issues around ownership and trading transparency in Indonesian stocks - a warning that had already prompted a market rout exceeding $80 billion. Moody's cited those developments as contributing to a deterioration in the clarity and effectiveness of policy signals.
The ratings agency warned of the potential consequences if the trend continued, saying: "If sustained, the trend could erode Indonesia’s long-established policy credibility, which has supported solid economic growth and macroeconomic, fiscal and financial stability."
Indonesia, a $1.4 trillion economy and a member of the G20 under the leadership of President Prabowo Subianto, has seen investors grow more cautious amid concerns over policy uncertainty. Specific issues noted include a widening fiscal deficit and questions around the independence of the central bank.
Bank Indonesia Governor Perry Warjiyo responded to the outlook change by emphasizing that the move did not indicate weakening fundamentals. He said economic growth remains solid and that "financial systems stability remains well maintained, supported by adequate liquidity, strong banking capitals, and low credit risks."
Bank Indonesia also said it would work to strengthen policy synergy to preserve macroeconomic and financial system stability and would "coordinate with the government to strengthen communication about policy in order to maintain market confidence."
Earlier on the same day, official data showed Indonesia recorded its strongest economic expansion in three years in 2025, with growth accelerating more than expected in the fourth quarter driven by robust household spending and strong investment. The president's office did not immediately reply to requests for comment on Moody's outlook change.
Prabowo has publicly set an ambition to lift Indonesia's growth trajectory from about 5% seen in recent years to as high as 8% during his term. Since assuming office in late 2024, he has taken steps intended to support that objective, including dismissing Finance Minister Sri Mulyani Indrawati - widely known for a fiscally conservative approach - and naming pro-growth economist Purbaya Yudhi Sadewa as her successor.
Financial markets responded to Moody's announcement with a modest sell-off in Indonesian international bonds. Longer-dated dollar-denominated notes, which had traded flat for much of the session, fell roughly 0.3-0.5 cents, with many bonds at their weakest levels in about five months, according to Tradeweb pricing.
The Finance Ministry issued a statement saying it "appreciates" Moody's decision to retain the sovereign rating and reiterated that the government is implementing an "economic transformation" to revitalize growth. The ministry added: "The government continues to ensure that all potential risks are properly managed."
Tensions in capital markets intensified earlier in the week when MSCI cautioned that unresolved concerns over ownership and trading transparency could lead to Indonesian stocks being downgraded to "frontier" status if the issues were not addressed by May. That warning preceded the resignation of a number of Indonesian officials, and prompted authorities to pledge governance reforms and other measures aimed at addressing MSCI's concerns.
Moody's said the negative outlook increases the likelihood that it could downgrade Indonesia's rating in the future if certain outcomes materialize. The agency specified conditions that could prompt a downgrade: a sustained shift toward more expansionary fiscal policy without matching revenue reforms; a marked deterioration in the external position driven by capital outflows; or a material weakening in the financial health of state-owned enterprises.
At present, Indonesia is rated Baa2 by Moody's, which is the agency's second-lowest investment-grade category.
Market participants expressed varied views on the outlook move. "This is a confidence test, not a credit event," said Mohit Mirpuri, a fund manager at Singapore-based SGMC Capital. He added: "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."
Key takeaways
- Moody's cut Indonesia's outlook to negative from stable, maintaining Baa2 but flagging reduced policymaking predictability and governance concerns.
- Officials highlighted that economic growth and financial system stability remain intact, pointing to adequate liquidity and strong banking capital.
- Markets reacted with a modest drop in longer-dated dollar bonds; authorities have pledged governance reforms and greater communication to restore confidence.
Contextual note - The government and regulators have signalled intentions to implement reforms and enhance communication in response to the combined market and ratings pressures.