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Tuesday, December 07, 2021

Fitch retains rating with negative outlook on ‘higher debt levels’

Last month, Moody’s Investors Service had affirmed India’s sovereign rating and upgraded its outlook to ‘stable’, from ‘negative’ citing receding downside risks to economy and financial system.

By: ENS Economic Bureau | New Delhi |
November 17, 2021 1:15:16 am
Even as higher debt levels pose constraints, India’s strong medium-term growth outlook relative to peers is a key supporting factor for the rating, it said.

Fitch Ratings on Tuesday affirmed India’s sovereign rating at ‘BBB-’ with a negative outlook, arguing that the rating action balances a still-strong medium-term growth outlook and external resilience against high public debt and a weak financial sector.

Even as higher debt levels pose constraints, India’s strong medium-term growth outlook relative to peers is a key supporting factor for the rating, it said.

“The medium-term debt trajectory remains core to our rating assessment, as higher debt levels constrain the government’s ability to respond to shocks and could lead to a crowding out of financing for the private sector, in our view. General government debt rose to 89.6% of GDP in FY21, the highest of ‘BBB’ emerging-market sovereigns. We forecast the ratio to decline slightly to 89.0%, still well above the 60.3% ‘BBB’ median in 2021,” the rating agency said in its assessment.

Risks associated with India’s high public debt are partly offset by the ability to finance its deficits domestically, which is a strength relative to most ‘BBB’ peers, as foreign currency government debt comprises only 6 per cent of total debt against BBB peers median rate of 33 per cent, it said. The government has also made headway on the nation’s potential inclusion in global bond indices, which could be positive from a credit perspective, as it would open up alternative sources of financing.

“We forecast robust GDP growth of 8.7 per cent in the fiscal year ending March 2022 (FY22) and 10 per cent in FY23 (ending March 2023), supported by the resilience of India’s economy, which has facilitated a swift cyclical recovery from the Delta Covid-19 variant wave in 2Q21,” Fitch said.

Last month, Moody’s Investors Service had affirmed India’s sovereign rating and upgraded its outlook to ‘stable’, from ‘negative’ citing receding downside risks to economy and financial system.

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