India’s debt reduction pace leaves room for downside risk: Fitch

India’s pace of debt reduction is gradual, leaving room for downside risk to sovereign rating in the eventuality of a significant economic shock, Fitch Ratings on Monday said.

The government provided greater clarity on its medium-term fiscal strategy in the budget for 2025-26. The government will aim to manage fiscal deficits so as to keep central government debt on a gradual downward trend to 50% (+/- 1%) of GDP by FY31, roughly 7% of GDP lower than FY25. Such a path would require fiscal deficits to be sustained at or just below the 4.4% of GDP deficit target in FY26 and is highly dependent on nominal GDP growth outcomes, Fitch said.

On a general government basis, including the states, which Fitch track for the rating it would imply deficits of around 7% of GDP and debt in the low 70% of GDP range by FY31.

“Increased confidence that the government can adhere to this medium-term fiscal framework and keep debt firmly on a downward path, would be positive for the sovereign rating over time. Still, the pace of debt reduction is gradual, which leaves open downside risks from a large economic shock,” Fitch said.

However, the rating agency expressed confidence in India’s ability to stick to its medium-term fiscal framework, which aims to reduce debt and bring it on a downward trajectory over time.

“Increased confidence that the government can adhere to this medium-term fiscal framework and keep debt firmly on a downward path, would be positive for the sovereign rating over time.

“Still, the pace of debt reduction is gradual, which leaves open downside risks from a large economic shock,” Jeremy Zook, Director and Primary Sovereign Analyst for India at Fitch Ratings, said while commenting on India’s 2025 Budget.

In August 2024, Fitch affirmed India’s sovereign rating at ‘BBB-‘ with a stable outlook. India’s rating has remained unchanged at ‘BBB-‘, the lowest investment grade, since August 2006.

Zook highlighted the government’s ongoing commitment to deficit reduction, even amid a slowing economic environment.

The fiscal deficit targets pegged in the budget align with Fitch’s expectations, with a slightly lower FY25 target of 4.8% and a FY26 target of 4.4%.

May be an image of money and text that says "SRK Nation ማ TON 水地 N လ Fnbla India's debt reduction pace leaves room for downside risk: Fitch Xf www.srknation.in"

See insights and ads

Boost post

Like

Comment

Send

Share

Leave a Reply

Your email address will not be published. Required fields are marked *