Further Multi-Notch Sovereign Downgrades Are Probable In 2020: Fitch Ratings

New Delhi, April 7: The rapid deterioration in the global sovereign rating outlook due to the coronavirus outbreak and sharp fall in oil prices makes additional multi-notch downgrades likely over the rest of this year, said Fitch Ratings in its latest report.

According to Fitch Ratings’ forecast and expectations, regarding sovereigns' debt trajectories or their ability to access financing, can be dramatically altered by the nature and speed of the pandemic and government responses.

“We will continue to assess sovereign creditworthiness case-by-case as the crisis and policy responses evolve, and this commentary does not identify specific sovereigns that might be vulnerable to multi-notch downgrades. However, conditions that have typically formed the backdrop to such rating actions in the past are coalescing again,” said the credit rating agency.

For developed market (DM) sovereigns, multi-notch downgrades have taken place historically amid large and sudden increases in government debt; this looks to be a certainty in many countries in 2020. In emerging markets (EM), multi-notch downgrades have been more common during exogenous shocks that cause abrupt changes in external financing conditions. This is a feature of current EM sovereign credit conditions.

There have been 65 multi-notch sovereign rating downgrades since 1995 involving 33 different sovereigns, representing 22 per cent of all sovereign downgrades. Two-thirds of multi-notch downgrades have been two-notch adjustments, with most of the remainder being three notches. For those sovereigns that have had more than one multi-notch downgrade, these have tended to come in close proximity, which means ratings are shifting downward by a rating category or more, consistent with crisis conditions, stated the report.

Since sudden, large improvements in sovereign creditworthiness are relatively rare by comparison, multi-notch upgrades have been much less common. Since 1995, there have been 28 instances involving 21 sovereigns, representing only 9 per cent of all upgrades, it added.