Moody’s: Governments’ Ability to Address Debt Burden is Critical to Their Credit Risk Assessment | Money



This archive photograph, taken on January 17, 2012, shows a close-up of the opening page of the rating agency Moody’s website on a monitor in Paris. – AFP photo

KUALA LUMPUR, September 29 – Most governments have seen increased debt due to the Covid-19 pandemic, and their ability to stabilize and reduce this heavier 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 rating agency, downward pressures on credit will intensify where the effectiveness of policies is insufficient to achieve sustained growth and a primary balance indicating a decrease in the 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 burden, will determine the political challenge facing sovereigns,” 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 of financing conditions, advanced economies such as France, Japan, the UK and the United States would continue to see its debt burden rise to all-time highs unless it achieves fiscal consolidation and / or sustained growth much faster than Moody’s currently predicts.

“In contrast, Cyprus, Germany, Norway, Portugal and Taiwan are more likely to regain their (varied) tax status more quickly after the pandemic shock,” he said.

Likewise, some emerging market sovereign states such as Vietnam and Hungary will see the debt shock induced by the pandemic dissipate in the medium term, Moody’s said, while others, including Brazil, Costa Rica, India, Namibia and South Africa will see their debt continue to decline. to augment.

“As they entered the crisis with an already high debt burden, the pressures on credit could intensify unless they accelerate fiscal consolidation and / or reach bank rates. sustained growth beyond current Moody’s expectations, ”he added. – Bernama


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