/RATINGS: Credit Profile Reflects Wealthy Economy & Affordable Debt

France's (Aa2 stable) credit profile reflects its wealthy and highly diversified economy, competent public institutions and affordable government debt, set against fiscal challenges that the pandemic has exacerbated, Moody's Investors Service said in an annual report today.

• The coronavirus crisis has widened fiscal deficits that were already high before the coronavirus crisis. Social discontent and the government's plans to support the economic recovery will limit the pace of fiscal consolidation over the coming years.
• "We expect that there will be fiscal consolidation from 2022 once the French government starts to roll back pandemic-related support measures," said Sarah Carlson, a Moody's Senior Vice President and author of the report.
• "However, the pace of deficit reduction will be gradual." Moody's forecasts that the budget deficit will decline to 5.4% of GDP in 2022, broadly in line with the authorities' plans. The public debt ratio is likely to remain around 115% to 120% of GDP, having increased from just below 100% in 2019, which is significantly higher than the debt ratios of most rating peers.
• France's high debt affordability mitigates its elevated debt burden. Upward pressures on the rating would emerge if France's fiscal and debt metrics were to improve materially on the back of more significant structural measures on the expenditure side once the pandemic shock abates.
• Conversely, the rating would come under downward pressure if the reforms implemented since 2017 were to be rolled back or diluted over the coming years, or if the unavoidable temporary increase in the budget deficit and debt ratio due to the pandemic were not corrected.
• Click for full report.