A report by DBS Group Research authored by Radhika Rao shows that Moody’s changed the outlook on Indonesia’s rating from “negative” to “stable”, while maintaining its Baa2 rating. The agency expressed concerns about confined predictability in policymaking and increased spending without adequate revenue generation. The report highlighted the possibility of a downgrade if policy actions do not improve over the next 12 to 18 months.

Negative outlook for Moody’s rating

“Moody’s Ratings tardy Thursday changed Indonesia’s rating outlook to ‘negative’ from ‘stable’ while affirming its Baa2 rating. The agency expressed far-reaching concerns, citing “reduced predictability in policymaking, which risks undermining policy effectiveness and indicates weakened governance.”

“A negative outlook change typically reflects a cautious approach to the sovereign, opening a window for further action over the next 12 to 18 months. Depending on the course of policy actions over this time frame, the next move could be a possible downgrade or return to a stable outlook.”

“Onshore financial markets are likely to see a sharp weakening in the near future due to the change in outlook, which will subsequently place a heavy burden on domestic policy responses. The change in outlook does not entail immediate changes to ratings-sensitive investment mandates, although there may be less appetite for building additional exposure, apart from a greater preference for shorter-dated securities.”

“We note that the CRA’s actions are policy-driven rather than cyclical, which creates scope for corrective action. A stronger commitment to the -3% of GDP budget deficit and debt ceilings will come in due course, along with a roadmap to gradually increase revenue resources to finance social plans.”

(This article was created with the facilitate of an artificial intelligence tool and has been reviewed by an editor.)