2024-04-25 21:39:20
Moody’s and Fitch are due to rule on France’s sovereign debt rating on Friday evening. The verdict from the S&P rating agency is expected on May 31. These assessments come after Bercy revised upwards its deficit forecasts for 2024.
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The spring verdicts of the rating agencies are imminent on France’s sovereign debt. Moody’s and Fitch are due to make a decision on this subject on the evening of Friday April 26, before S&P at the end of May.
These assessments come after a series of bad budgetary news since February: reduction from 1.4% to 1% of expected growth this year, need for 10 billion euros in immediate savings, before 20 billion – instead of 12 initially announced – in 2025.
INSEE also announced at the end of March that the public deficit (all administrations combined) had been 5.5% of GDP in 2023 instead of the hoped-for 4.9%, mainly due to poor revenue. Bercy recognized that it would still be 5.1% this year, instead of 4.4%, hence a second wave of 10 billion euros of efforts to be made in 2024.
Despite their recurring criticism, the agencies have shown a certain “magnanimity” towards France in recent years, keeping it among the best in the world, notes Éric Dor, director of economic studies at the IESEG School of management. .
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French debt is in fact “very liquid”, and the rating agencies “appreciate the solidity of French banks, (…) the strong diversification of the country’s production and, he argues, the scale of assets and private income which can potentially be taxed in the event of a financing problem. “But the risk is that these arguments become insufficient to avoid deterioration,” he warns.
The agencies are particularly concerned about the amount of debt, which exceeds 3,000 billion euros. According to Bercy, it reached 110.6% of GDP in 2023, will be at 112.3% this year and still at 112% in 2027.
The annual amount of repayments is enormous, and is expected to increase from 46.3 billion euros in 2024 to 72.3 billion in 2027, an increase due to the refinancing of old “strains” of debt at low interest rates by others at higher rates.
Fear of a rating drop or a negative signal from the agencies
In 2023, the Fitch rating agency took action first, lowering France’s rating by one notch to AA- with a “stable” outlook.
This month, she considered the deficit reduction targets put forward by the government “unambitious and increasingly out of reach”, but indicated that she would not lower the rating again, unless “unlikely” further significant worsening of the debt.
Moody’s, which places France at Aa2 (one notch above Fitch) with a “stable” outlook, considers the hypothesis of a recovery in the deficit to be not credible – like Fitch, the IMF or the High Council of Public Finances. public below 3% of GDP in 2027, announced by the government to comply with Brussels obligations.
Will it lower its rating on Friday, or will it give the current rating a “negative” outlook? Moody’s already highlighted at the end of March “the risks” linked to “optimistic economic and revenue assumptions, as well as unprecedented reductions in spending”.
“I maintain our ambition to return to below 3% deficit in 2027,” said Finance Minister Bruno Le Maire last week, on the sidelines of the IMF and World Bank meetings in Washington.
He, who regularly communicates with the agencies, must still convince S&P analysts of the seriousness of France. The most watched agency will in turn make its decision on May 31. If it wanted to give a negative signal, it would have to directly lower its AA, equivalent to Moody’s Aa2, because its outlook is already “negative”. This would be a bad signal nine days before the European elections.
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