Daily Management Review

Moody's expects declining sustainability of sovereign borrowers


Global uncertainty and a slowdown in global economic growth will negatively affect the creditworthiness of sovereign borrowers in the coming 2020, Moody's warns. So far, the risks of developed-country governments burdened by high debts have been masked by low interest rates. However, continuation of the period of soft monetary policy is of concern to experts - in particular, because the very high debt burden of the private sector in the event of a new crisis may again shift to the balance sheets of states.

The creditworthiness of sovereign borrowers will deteriorate next year, predicts the international rating agency Moody's. “Global uncertainty leads to a decrease in business activity and growth rates, exacerbating structural problems and increasing the likelihood of economic and financial shocks - while the antagonistic political climate, created primarily by the US-China confrontation in trade, reduces the resilience of countries with high debt burdens and low fiscal reserves volumes”, - the agency’s new report reads.

A total of 142 countries rated by Moody's account for $ 63.2 trillion of debt. It is noted that capital flows can make the weakest borrowers vulnerable.

This year, in the G20 countries, growth is likely to slow to 2.6% compared to 3% in 2018. In the future, growth will remain below the trend line, and any recovery in its pace will be limited, the agency predicts. The governments of developed countries are now burdened with a high burden, which was the result of the fight against the previous financial crisis.

So far, these risks have been “masked” by extremely low rates, which are likely to remain so in the coming years (given the low growth rate).

However, the continuation of a period of soft monetary policy is a concern, warns Moody's. In particular, the debt burden of the private sector is too high - and in the event of a crisis, part of it may again appear on the balance sheets of states.

source: moodys.com