February 6, 2026 | 07:01 pm
TEMPO.CO, Jakarta - International credit rating agency Moody's downgraded the Indonesian government's debt outlook from stable to negative on February 5, 2026. The decision stems from concerns over policy governance, specifically programs like the Free Nutritious Meal (MBG), which risk widening the budget deficit.
Indonesia's current debt rating stands at Baa2, one notch above investment grade, signifying it remains investment-worthy. However, the move to a negative outlook serves as a signal for a potential correction to a lower quality rating.
Executive Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira Adhinegara, views this as an early warning. He noted these concerns arise amid budget allocations for various programs, such as the inflated MBG.
"But the implementation has problems, even affecting the efficiency of education funds and regional transfers," he told Tempo on Friday, February 6, 2026.
The funding implementation for the MBG Program and Public Housing is included in the rationalization points for the rating downgrade released by Moody's. The agency identifies two major risks: a low tax revenue base that could widen the state budget deficit. In addition, these programs are funded by cutting the budgets of other ministries, including infrastructure maintenance.
Another consideration is the fiscal deficit limit, which is legally capped at a maximum of 3 percent of the gross domestic product. Moody's warns the government against raising this threshold above 3 percent.
What are the Impacts of the Debt Rating Downgrade on Indonesia?
Moody's is a major reference for global investors. A downgrade in the rating would result in capital outflows from the Government Securities (SBN) market. "While the government plans to issue around Rp800 trillion worth of debt this year," said Bhima.
According to the attachment of Law Number 17 of 2025 concerning the 2026 State Budget, new borrowing this year is targeted at Rp832.20 trillion, to be fulfilled by issuing Rp 799.5 trillion worth of SBN. The remainder, consisting of both domestic and foreign loans, amounts to Rp32.6 trillion.
The downgrade will also prompt creditors to demand higher interest rates. Bhima stated that higher interest payments create a growing debt cycle. This year alone, interest payments reached nearly Rp600 trillion, a figure significantly higher than the Rp386.3 trillion recorded in 2022.
If fiscal management does not improve, Indonesia's debt rating could drop to Baa3 or lower. "This will trigger even higher debt interest, a weaker rupiah, and heavier state budget burdens," said Bhima.
Meanwhile, Finance Minister Purbaya Yudhi Sadewa expressed no concern over Indonesia's debt rating dropping following Moody's outlook downgrade. He assured that the government will drive higher economic growth.
Purbaya maintained that Moody's doubts will gradually dissipate if the Indonesian economy expands faster. "Actually, the rating agency evaluates whether we are able to pay debts or willing to pay debts. We fulfill both. So, there should be no problem," Purbaya said at the Ministry of Finance office in Jakarta on Friday, February 6, 2026.
Read: OJK Cites Moody's Rating as Proof of Indonesia's Solid Economic Fundamentals
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