Pandemic debt impact varies widely across A-Pac sovereigns: Fitch
Jul 26, 2021
Hong Kong, July 26 : Pandemic-induced fiscal responses and economic contractions have led to a sharp rise in public debt among rated sovereigns in the Asia Pacific (APAC) region but there is significant variation between individual sovereigns' performance, according to Fitch Ratings.
Healthcare expenditures among APAC sovereigns have increased and to varying degrees authorities have spent heavily to mitigate the shock to household and corporate balance sheets associated with the crisis on measures ranging from furlough schemes to stimulus payments.
Fitch said revenues have meanwhile been hit by the pandemic-driven drop in economic activity along with temporary tax cuts and deferrals.
The resulting increases in general government (GG) debt have nevertheless varied widely. Between 2019 and 2021, GG debt/GDP is projected to rise by around 45pp in the Maldives and 27pp in Japan, but by just 3pp in Vietnam and 1.2pp in Taiwan.
Much of the variation in the ratios can be accounted for by either the extent of the fiscal response (affecting the numerator), or changes in nominal GDP (the denominator) -- or both.
Relative success in containing the pandemic has both bolstered GDP and reduced the pressure on governments to provide support, helping to limit increases in GG debt/GDP ratios over 2019-2021 in places like China, Hong Kong, South Korea, Singapore, Taiwan and Vietnam.
However, said Fitch, some countries where Covid case counts have been relatively low have still seen debt/GDP rise by more than the median for APAC, due partly to generous stimulus and support packages. This includes developed markets like Australia, Japan and New Zealand.
The increase in Japan's GG debt to a forecast 258 per cent of GDP in 2021 also reflects a weak GDP performance in 2020-21. The rise is notable, given that it already had the highest debt/GDP ratio of any Fitch-rated sovereign prior to the pandemic.
Among emerging markets, strong nominal GDP growth in 2020-2021 and relative fiscal restraint help to explain why GG debt/GDP ratios have risen more slowly in Bangladesh, Pakistan and Vietnam, than in sovereigns like the Maldives, the Philippines and Thailand, where tourism sectors suffered in the pandemic.
