Moody's: Indonesia Faces Continued Risk of Credit Rating Downgrade

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International credit rating agency Moody's has stated that the risk of a downgrade to Indonesia's sovereign credit rating is likely to persist, citing ongoing concerns over policy uncertainty and fiscal sustainability risks.

In an interview with Bloomberg on July 21, Martin Petch, a vice president at Moody's sovereign risk group, assessed that "while there have been positive developments, the balance of risks has shifted to 'somewhat negative' since the outlook for Indonesia's credit rating was downgraded last February."

He pointed out that "fiscal pressures have intensified, particularly following the Iran war, and a significant increase in government subsidies for the private sector is weighing on the budget for this year and next."

Previously, in February and March, both Moody's and Fitch downgraded their outlooks for Indonesia's sovereign credit rating from "stable" to "negative," citing growing concerns over fiscal policy and a decline in the credibility of policy decision-making following the inauguration of President Prabowo Subianto.

Moody's is particularly questioning the role of PT Danantara Sumber Daya Indonesia, a state-owned holding company and sovereign wealth fund established in May to oversee raw material exports.

The agency explained that uncertainty regarding the institution's role is heightening investor anxiety over increased government intervention.

Furthermore, Moody's views Indonesia's weak revenue base as an increasingly significant constraint, leaving the government with little room to pursue ambitious policies such as free meal programs.

Petch noted, "So far, we have not seen much progress in broadening the revenue base."

However, not all perspectives on Indonesia's fiscal health are negative.

Last week, another credit rating agency, Standard & Poor's (S&P), maintained Indonesia's sovereign credit rating at "BBB" with a "stable" outlook.

Petch emphasized that Moody's is closely monitoring the adequacy of Indonesia's foreign exchange reserves, policy credibility, the financial health of state-owned enterprises, and the governance of the Danantara group, adding that ultimately, the direction of policy will be the deciding factor.

(Photo: Getty Images)

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