Fitch Ratings downgraded a record 33 country ratings in the first half of this year – and the agency isn’t done yet as the coronavirus pandemic affects government finances.
James McCormack, Fitch’s global leader in country ratings, said the agency had put the credit ratings of 40 countries or states on a “negative” outlook. This means that these ratings may be downgraded.
“We have never had 40 countries simultaneously with negative prospects in the history of Fitch Ratings,”
“This comes after we downgraded 33 states in the first half of the year. We have never downgraded 33 in a given year, so we did it in half a year,” he added.
Government ratings downgraded by Fitch include the UK and Hong Kong.
McCormack said many governments have increased spending to protect their economies from a severe coronavirus pandemic. This should lead to a deterioration in the financial situation of all 119 countries rated by Fitch, he said.
The Fitch Ratings office in New York.
Cem Ozdel | Anadolu agency | Getty Images
Such deterioration could take the form of larger deficits or smaller surpluses in government budgets, or an increase in debt, he added.
The International Monetary Fund has said that many countries have implemented blocking measures to curb the spread of the coronavirus more than expected. The fund warned that global government debt could reach an all-time high of over 100% of global gross domestic product.
In a May report, Fitch also warned that sovereign defaults this year could hit a record high due to the coronavirus pandemic and weak oil prices. Argentina, Ecuador and Lebanon are in default of payments this year, the agency said in the report.
McCormack said the agency will monitor whether governments can lower their debt after the coronavirus pandemic emerges from economies.
“Our concern is really what happens after we reach the other side of the coronavirus crisis,” he said. “I think that’s the focus we have and that will really be the factor that determines where the reviews go.”
Correction: This article has been updated to take into account that Fitch has a negative outlook for Australia. In a previous version, the status of the country was incorrectly stated.