The deteriorative effects that the coronavirus pandemic is having on markets will put even more pressure on sovereign ratings than the global financial crisis from over a decade ago, a report from Fitch Ratings said.
The ratings agency expects 2020 to be "a record year for sovereign downgrades," given that government spending is expected to go up while household income goes down, thereby raising debt levels, according to the report released Friday.
There have so far been 23 downgrades and three upgrades in 2020. The record number of annual downgrades was 24 in 2016.
Fitch's sovereign rating model highlights nearly 60 notches of rating downgrades in 2020, split proportionately among the 119 Fitch-rated developed and emerging market sovereigns. Of these sovereigns, Fitch has a negative outlook on 25 and a positive outlook on seven.
"For the first time, Fitch forecasts that nearly all rated sovereigns will experience an annual fiscal deterioration, running larger deficits or smaller surpluses in 2020 compared with a year ago," the report said. "Similarly, we project that government debt levels will increase in almost all countries."
Despite the challenges, Fitch does not foresee that all sovereign ratings will be downgraded. Fitch will consider sovereigns' records of consolidation following periods of fiscal easing and will also take starting fiscal positions into account.
Fitch has identified Luxembourg, Singapore, Macao, Russia and Estonia as the sovereigns with the strongest fiscal positions. Those with the weakest positions are Angola, Sri Lanka, Japan, Lebanon and Bahrain.
