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Fitch cuts view on global sovereign debt
Global Banking & Finance Review®
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By Marc Jones
LONDON (Reuters) – Credit rating agency Fitch downgraded its view on sovereign debt on Thursday on concerns about the rise in global borrowing costs and the potential for a flurry of new defaults.
Fitch, which monitors over 100 countries, said the Ukraine-Russia war was stoking problems such as higher inflation, trade disruptions and weaker economies which are all now hurting sovereign credit conditions.
“Rising interest rates are increasing government debt-servicing costs,” Fitch’s Global Head of Sovereigns, James McCormack, said, cutting the firm’s view on the sovereign sector to “neutral” from “improving”.
“Most exposed are emerging market (EM) sovereigns, but some highly indebted developed markets are at risk as well, including in the euro zone.”
The number of countries seeing their credit ratings cut has begun to rise again this year as the pressures have built.
Most of the governments Fitch covers have either brought in subsidies or cut tax cuts to try to cushion the impact of surging inflation. But that carries costs.
“While modest fiscal deteriorations can be absorbed by the positive effects inflation has on government debt dynamics, such effects depend on the retention of low interest rates, which are now less certain,” McCormack said.
While commodity exporters will benefit from higher prices, those who have to import the bulk of their energy or food will suffer.
Gross external funding needs will be highest this year in both nominal terms and relative to foreign-exchange reserves for EM sovereigns that are net importers of commodities, McCormack added.
“They now face tighter global funding conditions, and with a record-high share of sovereigns rated in the ‘B’ category or lower, it is likely there will be additional defaults.”
The list of countries either in default or whose financial market bond yields suggest they will be currently stands at a record 17.
Those 17 are Pakistan, Sri Lanka, Zambia, Lebanon, Tunisia, Ghana, Ethiopia, Ukraine, Tajikistan, El Salvador, Suriname, Ecuador, Belize, Argentina, Russia, Belarus and Venezuela.
(Reporting by Marc Jones; Editing by Nick Macfie)
Emerging markets are economies that are in the process of rapid growth and industrialization. They often have lower income levels compared to developed countries.
Interest rates are the cost of borrowing money, expressed as a percentage of the total loan amount. They influence economic activity and can affect inflation.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
Financial stability refers to a condition where the financial system operates effectively, allowing for the smooth functioning of the economy without significant disruptions.
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