Fitch and S&P point to India’s high budget deficit and slow consolidation

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Business

oi-Olga Robert

Through Staff

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On Tuesday, rating agencies reported figures of India’s larger-than-expected budget deficit and a gradual pace of consolidation. Larger budget deficits and a more gradual pace of debt consolidation will increase the Indian government’s debt and put pressure on its sovereign ratings, Fitch Ratings said, warning that fiscal firepower is limited due to a debt ratio. raised.

Fitch and S&P point to India's high budget deficit and slow consolidation

“The budget forecasts larger short-term deficits of 9.5% of GDP in FY21 and 6.8% in FY22 and a more gradual pace of consolidation than we do. planes, reaching 4.5% only by FY26, “said Jeremy Zook, director, Asia Pacific Sovereigns, Fitch Ratings.

“The prospect of consolidation from these highs, while maintaining a significant degree of support for the economy, poses a significant challenge for Indian policymakers,” S&P said in a report.

S&P and Fitch both noted that increased capital spending is expected to support the economic recovery, which is expected to accelerate as COVID-19 cases decline as the immunization program rolls out.

On Monday, Finance Minister Nirmala Sitharaman said the current year’s budget deficit would reach 9.5% of GDP, well above the budgeted 3.5% and significantly above analysts’ estimates of around 7%. %.

The government also forecast a deficit of 6.5% for the next fiscal year 2021-22, and said it would only reach 4.5% by fiscal year 2025-26.

Fitch had placed India’s “BBB-” rating on a negative outlook in June 2020 due to the impact of the pandemic on growth prospects and the challenges of the high debt burden.

Article first published: Wednesday February 3rd, 2021, 11:12 AM [IST]

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