Fitch Ratings expects general government (GG) debt/GDP to fall for around half of sovereigns in Asia over 2023-2025. However, the scale of the decline appears modest in the context of strong regional economic growth and the large increase in government debt in most economies during the Covid-19 pandemic.
APAC sovereigns face headwinds in the near term from continued weak external demand. Nevertheless, we project the median level of economic growth among our rated APAC developed-market sovereigns over 2023-2025 will average around 2.2%, compared with 1.4% for North American and Western European sovereigns. APAC emerging-market sovereigns will average 5.3% growth in the same period.
Despite fast growth, the median level of GG debt/GDP among APAC sovereigns falls by just 1.9pp between 2022 and 2025. We forecast debt/GDP in 2025 will remain higher than in 2019 for roughly 80% of APAC sovereigns. Policy approaches prioritizing growth, and government efforts to mitigate the effects of high global inflation, account partly for the modest pace of fiscal consolidation. However, in several of these cases the upward drift continues a trend that predates the pandemic. Limited fiscal headroom while growth is robust could leave some sovereigns vulnerable to future shocks.
Some of Asia’s fast-growing emerging markets – including China (A+/Stable), India (BBB-/Stable) and Bangladesh (BB-/Negative) – are among those where we expect debt/GDP will continue to rise in 2023-2025, building on increases which were already big during the pandemic. Government debt rises from a relatively low base in China and Bangladesh, though this does not include China’s local government financial vehicle debt. Meanwhile, India’s debt and interest burdens are already high relative to ‘BBB’ category peers, which constrains India’s rating.
The report, “APAC Sovereigns to Make Slow Progress on Fiscal Consolidation”, is available at www.fitchratings.com or by clicking on the link.
