Moody's warns of increased fiscal risks and policy uncertainty in Indonesia, making stocks, bonds, and the rupiah among the weakest assets in the region this year.
On July 21, 2569 at 08.04:XNUMX p.m., Bloomberg News reported that Moody's Ratings continues to express concerns about the uncertainty surrounding Indonesia's economic policy and fiscal risks. While warning that downside risks are likely to continue, despite some positive developments recently.
Martin Petch, Vice President of Sovereign Risk at Moody's, stated that since Moody's downgraded Indonesia's credit rating outlook from "stable" to "negative" in February, the balance of risk has shifted more negatively.
He said that the war between Iran and the United States has forced the Indonesian government to significantly increase energy subsidies, putting pressure on its fiscal position both this year and next.
Moody's view aligns with investors' concerns about President Prabowo Subianto's economic policy direction, particularly regarding fiscal discipline, central bank independence, and the increasing role of government in key economic sectors. These factors have pressured Indonesian assets throughout the year, resulting in the stock market, bonds, and the rupiah being among the worst-performing assets in the region.
Another issue that Moody's is watching is PT Danantara Sumberdaya Indonesia, a new agency established by the government in May to oversee the export of raw materials. Moody's sees the unclear role and responsibilities as increasing investor concerns about government intervention in the economy.
Furthermore, Moody's noted that Indonesia's government's revenue base is relatively narrow, limiting its ability to finance large-scale projects such as the government's free school lunch program. To date, there has been no significant progress in reforming the country's revenue system.
However, Moody's acknowledged some positive signs, such as the government's cuts to the free school lunch program to offset increased energy subsidies and keep the budget deficit within legal limits, as well as a budget review to explore further austerity measures.
Conversely, S&P Global Ratings maintained Indonesia's investment-grade credit rating and a "stable outlook," despite earlier downgrades by Moody's and Fitch Ratings, reflecting continued confidence in the country's credit fundamentals.
Moody's stated that the next 6-12 months will be a crucial period, closely monitoring the adequacy of international reserves, the credibility of economic policies, the status of state-owned enterprises, and the governance of PT Danantara. The agency warned that if the government continues to expand fiscal spending without supporting revenue-generating measures, it will negatively impact Indonesia's credit rating in the long term.
refer : bloomberg.com
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