Vaccine rollouts support stable outlook for A-Pac sovereign ratings: S&P

S&P Global Ratings expects most Asia Pacific sovereign credit ratings to remain unchanged in the next one to two years despite the continued pressures posed by Covid-19.

S&P Global Ratings expects most Asia Pacific sovereign credit ratings to remain unchanged in the next one to two years despite the continued pressures posed by Covid-19. A year since its outbreak, Covid-19 remains the key risk facing Asia Pacific sovereigns. The successful development of a few Covid-19 vaccines brings optimism that the pandemic will soon be beaten.

However, achieving a level of vaccination high enough to stop the disease may not happen anytime soon. In the meantime, rebounds in infection rates can weaken credit metrics further, according to a report published on Thursday. "We expect budget deficits to narrow markedly for many sovereigns in the region either in 2021 or 2022. However, some of these forecasts may prove optimistic if governments are unable to keep infection rates at reasonable levels," said S&P Global Ratings credit analyst KimEng Tan.

This is particularly true for sovereign ratings with negative outlooks where significant deteriorations can lead to lower ratings. A number of risks to sovereign credit quality remain prominent. One is a slowdown in Chinese economic growth if the export and investment-driven recovery in the country is not followed by stronger consumer demand.

Another is a surprise further deterioration in US-China relations. Domestic social tension can also worsen in some economies that are more affected by the pandemic. "A potential new variant of Covid-19 that is more deadly and makes existing vaccines ineffective poses a further risk to sovereign credit recovery. In this scenario, a sustained improvement of sovereign credit metrics will be pushed further out by more than a year," said Tan. (ANI)

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