Sovereign rating actions stall in 1H21: Fitch

Fitch Ratings said on Tuesday there were no sovereign rating upgrades and only three downgrades in 1H21, marking the fewest rating actions in a six-month period in more than 20 years.

After the busiest year on record, when 33 sovereigns were downgraded, 2021 is shaping up to be among the quietest.

At mid-year, 31 sovereigns are on negative outlook, down from the Covid-19 crisis high of 44 in August 2020. Fitch downgraded three sovereigns (Laos, Maldives and Sri Lanka) to CCC during this period and thus they are no longer assigned outlooks.

Outlooks that were revised to stable from negative were about evenly split between those downgraded and those whose ratings were affirmed. Fitch expects an approximately similar split for the remaining negative outlooks, though the timing of changes will vary.

The current negative outlooks have been in place for an average of 12.5 months.

The median global fiscal deficit was 6.9 per cent of GDP in 2020 and is forecast by Fitch to be 5.7 per cent in 2021 and 4 per cent in 2022. Government debt relative to GDP is forecast to rise in 75 of 120 rated sovereigns this year.

Sovereigns' debt trajectories compared with peers will remain an important rating consideration and Fitch said it will continue to assess changes in debt dynamics in the context of annual budgeting processes and any accompanying medium-term fiscal strategies.

Risks in the months ahead include inflation developments that might warrant changes in central bank policies or revisions to market expectations of inflation that could affect longer-term interest rates. With higher debt, most sovereigns are more vulnerable to rising interest rates, said Fitch.

( With inputs from ANI )