KUALA LUMPUR, Sept 29 — Most governments have seen an increase in debt due to the Covid-19 pandemic, and their ability to stabilise and reduce this higher burden and rebuild fiscal space before the next shock will be critical to their credit risk assessment, Moody’s Investors Service said in a report today.
According to the credit rating agency, downward credit pressures will build where policy effectiveness is insufficient to achieve sustained growth and a primary balance that point to a declining debt burden.
Vice-president and senior credit officer Lucie Villa said sovereigns face different debt dynamics, driven by fiscal developments, gross domestic product growth and borrowing costs.
“These dynamics, combined with the different starting levels of the debt burdens, will determine the policy challenge that sovereigns face,” she said in a statement today.
Moody’s said that assuming a return to growth similar to pre-pandemic rates, gradual fiscal consolidation and a slow tightening in financing conditions, advanced economies such as France, Japan, the United Kingdom and the United States would continue to see their debt burden increase from historical highs unless they achieve much faster fiscal consolidation and/or sustained growth than Moody’s currently expects.
“By contrast, Cyprus, Germany, Norway, Portugal and Taiwan are more likely to regain their (varied) fiscal standing faster after the pandemic shock,” it said.
Similarly, some emerging market sovereigns such as Vietnam and Hungary will see the pandemic-induced debt shock broadly unwind in the medium term, Moody’s said, while others, including Brazil, Costa Rica, India, Namibia and South Africa, will see debt continue to rise.
“Given that they entered the crisis with already elevated debt burdens, credit pressures could intensify unless they accelerate fiscal consolidation and/or achieve sustained growth rates beyond Moody’s current expectations,” it added. — Bernama
