APAC government debt-GDP ratio to rise in 2024-2026: Fitch

Since the COVID-19 pandemic, many APAC governments have focused on stimulating growth and mitigating the effects of global inflation, rather than reducing budget deficits. As a result, the median GG debt-to-GDP ratio for rated sovereigns in the region reached 51.2 per cent in 2024, significantly higher than the 38.3 per cent level recorded in 2019, as per Fitch.

While pandemic-related challenges are receding, APAC is forecast to be the second-fastest growing region globally between 2025 and 2026, with median real GDP growth averaging 5.1 per cent. Despite this economic growth, Fitch expects the region’s median GG debt-to-GDP ratio to increase to 52.5 per cent by 2026.

Debt levels are projected to rise in 11 of the region's sovereigns, over half of Fitch’s rated portfolio. The sharpest increase is forecast in China (A+/Negative), where GG debt is expected to rise by 5.4 percentage points. Significant increases of over 2 percentage points are also forecast for Australia (AAA/Stable), the Maldives (CC), New Zealand (AA+/Stable), and Thailand (BBB+/Stable).

Fitch cautions that the limited progress in restoring fiscal headroom could leave some APAC sovereigns less equipped to respond to future economic shocks, potentially affecting their Long-Term Foreign-Currency Issuer Default Ratings. Sovereigns with rising debt levels over the next two years could face downward ratings pressure.

China, for instance, may see negative rating action if the upward trend in debt-GDP continues, as noted in Fitch’s previous assessments.

Fibre2Fashion News Desk (DP)