Fitch Ratings has downgraded a record 33 sovereign ratings in the first half of this year, and the agency is not yet done as the coronavirus pandemic affects government finances.
James McCormack, global head of sovereign ratings at Fitch, said the agency has placed the credit ratings of 40 countries or sovereign entities in a “negative” outlook. That means those ratings have the potential to downgrade.
“Never in Fitch Ratings’ history did we have 40 countries with a negative outlook at the same time,” he told CNBC’s “Capital Connection” on Friday.
“That comes after we already downgraded the rating in the first half of the year to 33 sovereigns. We never downgraded to 33 in any given year, so we have already done so in half a year,” he added.
Sovereign credit ratings that Fitch has downgraded include the UK, Australia and Hong Kong.
McCormack explained that many governments have increased spending to protect their economies from the severe coronavirus pandemic. That is expected to cause a deterioration in the financial positions of the 119 countries rated by Fitch, he said.
The Fitch Ratings office in New York.
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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 the blocking measures imposed in many countries to stop the spread of the coronavirus have damaged the global economy more than expected. The fund warned that global public debt could hit a record high of more than 100% of global gross domestic product.
Fitch, in a May report, also warned that sovereign defaults could hit a record high this year due to the coronavirus pandemic and weak oil prices. Argentina, Ecuador and Lebanon have defaulted on their debt this year, the agency said in the report.
McCormack said the agency will be watching whether governments can reduce their debt levels after economies emerge from the coronavirus pandemic.
“Our concern really is what happens after we get to the other side of the coronavirus crisis period,” he said. “I think that is the approach we have and that will really be the factor that determines where the ratings go.”
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