Moody’s Rating Review: France’s Debt Evaluation and 2024 Budget Guarantees

2023-10-20 02:33:51

Six months following the downgrading of its rating by Fitch, France is on Friday under the grill of the rating agency Moody’s responsible for evaluating its debt, while the government wants to give guarantees of seriousness in the 2024 budget.

The agency, which currently gives France an “Aa2” rating with a stable outlook, is the first to look once more this year at the French rating, before Fitch on October 27 and Standard & Poor’s (S&P) on December 1.

She can update the note and perspective in the evening or keep them unchanged. And she can choose to communicate or not.

Although it had few consequences on the markets, the lowering of France’s financial rating by Fitch to “AA-” with a “stable” outlook last April was a warning shot.

Fitch had notably mentioned “significant budgetary deficits and modest progress” regarding their reduction, following three years of abundant public spending intended to cushion the shock of Covid and inflation, and social tensions around pension reform.

A few weeks later, France narrowly escaped a downward revision of the “AA” rating assigned by S&P, considered the most influential of the three.

But S&P also hadn’t touched the “negative” outlook, meaning a rating downgrade is possible. S&P had noted “risks” relating to the execution of budgetary objectives, such as “the absence of an absolute majority” in Parliament.

Since these latest updates, “the political aspect has more or less stabilized”, analyzes for AFP the economist and independent consultant Norbert Gaillard, noting that the agencies have credited France with the reforms of the labor market and retirements.

– “Credibility” –

However, the government was once more forced, on Wednesday, to take responsibility for having the “revenue” part of the budget adopted in parliament, with the opposition immediately announcing two motions of censure.

While the debt has exceeded 3,000 billion euros and the deficit is well outside the European charts, the text provides for at least 16 billion euros in savings – resulting mainly from the end of exceptional measures, like the tariff shield for electricity.

But some economic projections are considered optimistic by some economists and organizations.

The ministry is banking on economic growth of 1% this year, then 1.4% in 2024. It plans to reduce the public deficit from 4.9% of GDP in 2023 to 4.4% in 2024, then to 2. 7% in 2027. Debt would remain stable at 109.7% of GDP in 2024, reaching 108.1% at the end of the five-year term.

“Normally, the draft budget is likely to reassure agencies, unless they question its credibility,” notes Eric Dor, director of studies at the IESEG School of Management.

Other factors might potentially lead to a revision of Moody’s outlook to “negative”, or even a downgrade of the S&P rating.

The slowdown in growth might have an adverse impact on budget revenues, and the debt burden in spending might increase with a further rate increase by the European Central Bank (ECB) at its October 26 meeting.

France plans to borrow a record amount of 285 billion euros on the markets in 2024.

published on October 20 at 4:33 a.m., AFP

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