'Rising Debt Burden'... Advanced Countries Face Credit Rating Concerns Amid COVID Resurgence

Moody's Report "Debt Ratios of 14 Advanced Countries to Increase by 19%p This Year Compared to Last Year"
Top-Rated Canada Downgraded by One Notch...Watchful of Impact on Other Countries

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] As advanced countries have poured out massive economic stimulus measures for months in response to the novel coronavirus disease (COVID-19), voices expressing concerns about debt burdens are emerging. With the possibility of a second wave increasing, additional fiscal spending has become inevitable, raising warnings that the debt burden could lead to a downgrade in national credit ratings. Future fiscal policies for economic recovery are expected to face constraints.

Credit rating agency Moody's recently released a report titled "COVID-19 is Increasing Debt Burdens," forecasting that the debt-to-GDP ratio of 14 advanced countries, including the United States, will rise by 19 percentage points this year compared to last year. This increase is nearly twice as high as the rise immediately following the 2009 global financial crisis. Among these countries, the United States, Japan, Canada, the United Kingdom, Italy, France, and Spain are expected to see increases of more than 20 percentage points.

In particular, the fiscal deficit size of advanced countries is also expected to increase by 8 percentage points this year, which is projected to be larger than the combined deficits of 2008 and 2009. Moody's analyzed, "Compared to the financial crisis, the intensity and breadth of the shock caused by COVID-19 are reflected, making the increase in debt burdens more immediate and widespread."

As government debt burdens grow, their impact is already appearing on national credit ratings. Credit rating agency Fitch downgraded Canada's national credit rating by one notch from the highest 'AAA' to 'AA+' the day before, citing expanding fiscal deficits and rising debt. Mark Wiseman, former Vice Chairman of BlackRock, the world's largest asset management firm, said in an interview with Bloomberg TV that Canada's credit rating downgrade serves as a reminder that there are limits to national fiscal policies, adding, "What governments did initially was the 'right thing,' but now they need to consider how to take effective measures from a long-term perspective." This implies that managing risks has become more important as the situation prolongs.

The problem is that despite such advice, advanced countries show no signs of ending their money printing. The COVID-19 situation is prolonged, and consumption is not recovering as quickly as initially expected, making additional support inevitable. The Trump administration in the United States, which has already announced a massive $2.2 trillion stimulus package, is discussing with Congress to introduce additional measures next month ahead of the November presidential election. In Europe, discussions on a recovery fund at the European Union (EU) level are ongoing, which is expected to increase the fiscal burden on member countries. In Japan, the National Diet passed the largest-ever second supplementary budget for COVID-19 response on the 12th. The possibility of credit rating downgrades spreading to countries other than Canada cannot be ruled out.

Moody's analyzed that economic growth slowdown this year will raise debt burdens by an average of 5 percentage points in the 14 advanced countries. Policies aimed at supporting economic agents act as a burden that lowers the overall vitality of their domestic economies. Moody's warned, "Credit ratings depend on whether governments can reverse current debt burdens before potential future economic shocks occur," adding, "If the debt-to-GDP ratio is not reduced, countries with lower credit ratings will become more vulnerable to future economic and financial shocks."

The 14 countries are the United States, Canada, Japan, the United Kingdom, Italy, France, Spain, Germany, Belgium, the Netherlands, Switzerland, Sweden, New Zealand, and Australia.

This content was produced with the assistance of AI translation services.