France Rating Outlook Cut to Negative by Fitch on Wider Deficits

Date: 14 October 2024 - 22:09

News ID: ۱۳۲۴۲۶

PARIS (Bloomberg) -- Fitch Ratings put France on negative outlook a day after the government presented its 2025 budget, delivering a rapid critique of Prime Minister Michel Barnier’s efforts to deal with a sharp deterioration in public finances.
The ratings firm’s reproach comes after it already downgraded France to AA- from AA in April last year, a credit assessment it shares with the UK and Belgium.
“Fiscal policy risks have increased since our last review,” Fitch said in a statement Friday. “This year’s projected fiscal slippage places France in a worse fiscal starting position, and we now expect wider fiscal deficits, leading to a steep rise in government debt towards 118.5% of GDP by 2028.”
The alert on France’s creditworthiness underscores the depth of the country’s fiscal challenges. The situation has deteriorated rapidly in 2024 after weak tax receipts left a hole in the budget and President Emmanuel Macron triggered months of political uncertainty and policy inertia with a snap decision to dissolve parliament.
The episode has prompted investors to sell French bonds, driving up the premium the country pays over Germany on ten-year debt to close to 80 basis points from less than 50 earlier in the year.
In an effort to steady the situation, Barnier’s minority government presented a 2025 budget plan on Thursday with €60 billion ($65.6 billion) of spending cuts and tax increases to bring the deficit to 5% of economic output from 6.1% this year. The previous administration initially targeted a 4.4% deficit in 2024.
The fiscal slippage and emergency measures have clouded Macron’s reputation as a reformer capable of solving France’s long term financial challenges with tax cuts and reforms to spur economic growth.
The country will run the gauntlet of more ratings reviews in the coming weeks from Scope, Moody’s and S&P, which downgraded France earlier this year.
France’s latest budget plans have also received criticism from the country’s fiscal watchdog, the High Council of Public Finance. It said the draft bill is “fragile” due to an optimistic growth forecast given the extent of promised tax increases and spending cuts.
Fitch forecasts a deficit of 5.4% of GDP in 2025 and 2026, and said it doesn’t expect the government to meet its pledge to get the gap within the EU’s 3% limit by 2029.