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Fitch forecasts Covid-19 sovereign impact to be lasting

24 Mar 2021

  • Pandemic to influence public finance positions for years

  • Fitch downgrades 33 sovereigns in 2020

  The severe global economic disruption caused by the coronavirus and its associated mobility restrictions resulted in a record number of sovereign rating downgrades and sovereigns placed on Negative Outlook in the past year, consistent with crisis conditions that stretched macroeconomic policy frameworks and will continue to influence public finance positions in the years ahead, said Fitch Ratings. Fitch downgraded 33 sovereigns in 2020, although their Sovereign Rating Model pointed to 81 downgrades, underscoring both the widespread deterioration in credit fundamentals and the fact that ratings are a blend of relative and absolute risk assessments. “Comparative considerations will also have a role in determining the eventual conversion rate of Negative Outlooks, which currently number 38, to downgrades. Historically, 63% of sovereigns on Negative Outlook have been downgraded, but the conversion rate is typically lower during and after crises,” the rating agency added in a statement yesterday (23). New policy undertakings in the past 12 months include massive fiscal stimulus packages, quantitative easing in a number of emerging markets, the Next Generation EU (European Union) initiative, and the G20 Common Framework aimed at low and lower middle-income countries. Rating implications vary, and will take time to materialise fully, the rating agency added.


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