Moody's: Negative global sovereign outlook for 2021 from Covid-19 fallout

By NST Business

November 11, 2020 @ 12:24pm

KUALA LUMPUR: The outlook for sovereign creditworthiness in 2021 is negative, Moody's Investors Service said in its annual Global Sovereign Outlook today.

The widespread fallout from the Covid-19 pandemic and measures adopted by sovereigns to contain it had created an economic, fiscal and social shock that would last into 2021 and beyond, Moody's added.

"Large fiscal deficits will push government debt levels to the highest levels recorded since the aftermath of World War II.

"For many of the poorest countries, debt ratios next year will return to, or exceed, the levels reached before the Highly Indebted Poor Country initiatives launched in 1996," it said.

In 2021, Moody's expects most, if not all, global economies to begin the gradual recovery from the shock caused by the pandemic, while governments would continue to unwind their support measures for households and companies.

"However, neither of these factors will do more than halt, and in some cases simply slow, the erosion in government finances, which will be far weaker after the crisis than they were before," said Lucie Villa, Moody's vice president, senior credit officer and the report's co-author.

The firm said over the near term, sovereigns with low credit ratings would be most affected given their lower economic and institutional strength as well as more limited access to funding compared with sovereigns with stronger credit profiles.

However, over the medium-term, sovereigns across the rating spectrum will face increasingly challenging policy trade-offs.

"Most relate to the need to design exit strategies and the reforms required to address structural flaws created or exacerbated by the crisis, while trying to reconcile a range of socioeconomic tensions laid bare over the past few months," Moody's added.