Global fiscal recovery to slow in 2022 & 2023: Fitch Ratings

On the 2022-2023 pace, the median global fiscal position would return to its pre-pandemic level in 2029.

“Higher inflation accompanied by slowing economic growth does not represent the same policy dilemma to the fiscal authorities as it does to central banks. Most Fitch-rated sovereigns have already introduced fiscal support measures to help households and businesses cope with accelerating prices, and more such policies are expected if prices remain elevated,” said Fitch in its report titled Global Fiscal Recovery Interrupted.

Policy interest rates are rising, and Fitch believes this marks an end to the era of very low government borrowing costs, which have primarily benefitted developed-market sovereigns. Even so, it is real interest rates that matter for growth, and real rates relative to real GDP growth that matter for government debt dynamics. Long debt maturities imply rising interest-service burdens will materialise only gradually.

Emerging-market fiscal positions are more divergent than they were pre-pandemic. This is due in part to the surge in commodity prices that is supporting government revenue and nominal GDP growth in commodity-exporting regions, including the Gulf Cooperation Council and Latin America. With greater fiscal divergence has come greater ratings divergence. The number of sovereigns rated ‘CCC’ or lower has been at or near a historical high since late-2020. Current global credit conditions and those expected by Fitch for the next year suggest continued fiscal and rating stresses ahead.

The COVID-19 crisis resulted in a record 51 downgrades of 33 sovereigns in 2020. Fitch Ratings downgraded several sovereigns more than once, and there were six multi-notch downgrades. Rating actions were driven primarily by fiscal deteriorations, with almost all sovereigns running larger deficits, resulting in higher debt ratios. The average sovereign rating is 0.4 notches lower than end-2019.

Fibre2Fashion News Desk (KD)