THE economic and financial impact of the COVID-19 pandemic in 2020 created a severe and extensive credit shock globally.
According to Moody’s Investors Service, almost half of the 23 sovereign rating actions in Asia Pacific (APAC) region in 2020 were negative, representing more than double the number in 2019 and 2018.
“The impact of the pandemic was the main driver for nine of the 11 negative rating actions taken. Five of the total were downgrades, of which three were principally driven by the shock from the COVID-19 outbreak,” the credit rating agency pointed out in a report.
According to Moody’s, negative rating actions have increased in the APAC region over the year, leaving six of its 25 rated sovereigns with negative outlooks as of January 12, 2021.
However, the number of APAC sovereigns at each broad rating category has remained relatively stable compared with 2019 and with 2009 after the global financial crisis.
Nevertheless, the credit rating agency projects economic growth in all rated economies in APAC to rebound from the pandemic shock in 2021.
“Our outlook for sovereign creditworthiness in 2021 in APAC is negative overall, reflecting our expectations for the fundamental conditions that will drive sovereign credit over the next 12-18 months,” Moody’s commented.
“The shape of the recovery for each economy will depend on how governments balance facilitating a return to growth against possibly competing health and fiscal objectives, and monetary and external stability.”
Moody’s elaborated that the lasting credit impact will ultimately depend on the effectiveness and persistence of Governments’ containment measures, and their ability to restore fiscal strength and return to planned structural reforms.
It expects half the rated sovereigns in the region will only regain their 2019 levels of real inflation-adjusted gross domestic product (GDP) after 2021.
“Over the near term, sovereigns will face an erosion of their fiscal positions as governments provide ongoing economic support with the weakening most severe for the lowest-rated sovereigns,” projected the credit rating agency.
“Over the medium-term, shifts in national development priorities and countries’ roles in global supply chains will drive new economic growth models. Social and political tension, fuelled by rising inequality amid the pandemic, will present a further challenge for recovery and reform.” – Jan 12, 2021
