Jakarta, Indonesia – Indonesia’s economic outlook faces increased scrutiny following a downgrade of its credit rating outlook to negative by Moody’s Investors Service. While the long-term debt rating remains at Baa2 – just above non-investment grade – the shift signals growing concerns among international investors regarding the country’s fiscal management, and governance.
The move, announced on Friday, February 6, 2026, prompted a measured response from Indonesian Finance Minister Purbaya Yudhi Sadewa, who emphasized the country’s recent economic recovery. “The economy has turned around, faster than before,” Purbaya stated, expressing confidence that conditions will improve and Moody’s will reassess its position. He pointed to a 5.39% growth rate in the fourth quarter of 2025 and an overall growth of 5.11% for the year as evidence of positive momentum.
Purbaya suggested that Moody’s assessment may have been made before the release of the latest economic growth figures. He anticipates a more favorable review once the data is fully considered, highlighting the government’s progress in fiscal management and its ability to control the budget deficit. “I think the numbers will be slightly different,” he said. “From the fiscal side, we are moving in the right direction, growth is better, and the deficit is still under control.”
Governance Concerns Drive Outlook Revision
According to Purbaya, the primary driver behind Moody’s decision stems from anxieties surrounding the implementation of the government’s ambitious Free Nutritious Food (MBG) program and its potential impact on the national budget. Moody’s expressed concerns about potential uncontrolled spending within the program, a point Purbaya acknowledged. “That’s what I will look at later, to ensure there is no uncontrolled waste there. That’s probably what Moody’s is also worried about,” he explained.
The Finance Minister assured that the MBG program will be carefully monitored to ensure it is targeted, effective, and efficient. He indicated a review of the program’s implementation and a commitment to minimizing budgetary leaks, both at the national and regional levels. “I will look at each one. Later I will see what corrections we need to make to the MBG, what the others are like, and importantly, government spending will be pushed to be on target, on time, and with little leakage,” Purbaya said.
Beyond the MBG program, Moody’s also raised concerns about a widening budget deficit. While the deficit for 2025 reached 2.92% of Gross Domestic Product (GDP), up from an initial plan of 2.53%, Purbaya expressed confidence in his ability to maintain fiscal discipline. He believes the agency’s concerns are short-lived.
Dismissing Downgrade Risk, Forecasting Future Upgrade
Purbaya dismissed the possibility of an actual downgrade of Indonesia’s credit rating, arguing that the country’s economic fundamentals and fiscal control remain strong compared to other nations. He anticipates a potential upgrade in the future, possibly after the end of 2026, if economic growth surpasses 6%. “There isn’t a very strong reason to downgrade,” he stated. “In fact, we should gradually see prospects for an upgrade.”
The government’s focus, Purbaya emphasized, will remain on improving economic fundamentals. He believes that demonstrating a commitment to fiscal responsibility and sustained economic growth will ultimately alleviate Moody’s concerns and restore confidence in Indonesia’s creditworthiness.
The Moody’s review comes after a visit to Jakarta from January 27-29, 2026, during which representatives met with officials from various government ministries and agencies, including the Ministry of Finance, to discuss the country’s economic outlook and fiscal policies. The agency’s assessment underscores the importance of maintaining fiscal prudence and effective governance in attracting foreign investment and ensuring long-term economic stability.