Friday 23 February 2018

Scale of government debt 'top global risk' as tolerance for austerity wanes

Minister Paschal Donohoe
Minister Paschal Donohoe
Donal O'Donovan

Donal O'Donovan

High levels of national debt are now the top threat to government finances globally, rating agency Fitch has warned, saying governments and populations were also now less willing to commit to austerity to rein in borrowing.

Faster global growth means what the rating agency calls the "global sovereign credit cycle" is likely to turn less negative in 2017 - meaning fewer nations run the risk of a default.

However, Fitch said debt levels in both developed and emerging markets were a concern, especially if borrowing costs started to rise.

"The biggest constraint on ratings is high and still-rising government debt levels, evident in both developed and emerging markets, leaving sovereigns exposed to a change in the global interest rate environment," James McCormack, global head of sovereign and supranational ratings at Fitch, said in a statement.

It comes amid news that Ireland's national debt has surpassed €200bn for the first time this year, as the cost of almost a decade of budget deficits and bank bailouts has piled up.

Irish government borrowing costs remain at close to an all-time low, however, and the National Treasury Management Agency (NTMA) plans to raise €750m in new bond debt today, at prices that imply an interest on 10-year borrowings of around 1pc a year.

Fitch said the wider ratings outlook trend has turned positive in developing markets and expects the median emerging market current account deficit to improve slightly to 2.9pc of GDP in 2017.

The European political environment is also more settled than it was at the start of the year. However, the beginning of the Brexit negotiations represents a material risk to the UK, Fitch said.

However, Fitch also said that it expects the primary fiscal balances of most countries to deteriorate, mainly due to the lower political support for additional fiscal tightening in developed markets.

In Ireland, the Government is planning a balanced budget next year, but Finance Minister Paschal Donohoe yesterday bowed to pressure and halved a long-term commitment to set aside €1bn a year in a rainy- day fund once the exchequer is in surplus, in order to boost spending.

Fitch at the weekend affirmed Ireland's credit rating at 'A', with a stable outlook.

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