Dec 09, 2020 (LBO) – Uncertainties over the spread of coronavirus as well as its immediate and longer-term economic implications will continue to exert pressure on global public finances in 2021, according to Fitch Ratings.
With vaccine rollouts now looking imminent, the agency assumes global economic recovery will take a firmer hold by mid-year, even though the economic and fiscal implications of the virus are likely to linger.
The record number of sovereign rating downgrades in 2020, at more than 30, will be followed by another year of credit stress in 2021, as about one-third of the global sovereign portfolio is assigned a Negative Outlook.
The largest number of negative actions was in the ‘B’ category, and in Latin America and sub-Saharan Africa, but no region or rating category has been spared.
Fitch in 2020 downgraded several sovereigns that will enter 2021 on Negative Outlook, implying a number of multi-notch downgrades in the current cycle.
Interest service burdens (interest payments relative to revenue) remain largely manageable in developed markets in light of low interest rates and central bank bond purchase programmes.
Emerging-market sovereigns have had a greater degree of policy flexibility in this regard than previously envisaged, although Fitch believes it will be important to explore this newfound flexibility carefully.
Even with central bank support, the median interest service burden in emerging markets is high, at about 10%, reflecting government debt increases that predated the pandemic.