Moody’s warns of downgrade if India’s fiscal metrics weaken

“This would likely happen in the context of a protracted or deep slowdown in growth, with only limited prospects that the government could restore stronger production through economic and institutional reforms,” ​​the rating agency said in its credit opinion.

A marked and lasting weakening in the health of the financial sector would increase the associated fiscal costs if the government needed to support some financial institutions, and increase the risk that growth would remain too low to avoid an increase in the debt burden, Moody’s added. . .

As of now, Moody’s has assigned the Baa2 sovereign rating to India with a negative outlook.

The rating agency has revised its 2020-21 growth forecast for India to 0% from an estimated 2.6% in March.

Moody’s said India’s credit profile is underpinned by its large and diverse economy and stable domestic financing base. “This is balanced by high government debt, weak social and physical infrastructure, and a fragile financial sector, facing new pressures amid the coronavirus outbreak. The shock will exacerbate an already material slowdown in economic growth, which has significantly reduced the prospects for lasting fiscal consolidation, “he added.

Fitch Ratings warned last month that the deterioration of India’s fiscal outlook as a result of slower growth could put pressure on its sovereign rating at a time when the government is considering announcing a stimulus package for medium, small and micro-enterprises. and the informal sector.

“Fiscal easing is likely to be announced to support growth, given the prolonged blockade. Further deterioration in the fiscal outlook as a result of slower growth or fiscal easing could put pressure on the sovereign rating in light of the limited fiscal margin than India had when it entered this crisis, “the rating agency said in a statement.