Funding needs may strain credit ratings, Fitch says
Asia's economic slowdown and tapering by the US Federal Reserve could affect sovereign credit ratings, says Fitch Ratings, as countries juggle debt financing needs with outflows of US dollars.
"The ongoing tightening of US funding conditions … in particular the spotlight has been thrown on the extent that countries need funding and, in turn, that raises the question of whether funding needs are growing or shrinking," said Andrew Colquhoun, head of Asia-Pacific Sovereign Ratings at the rating agency.
Particularly at risk are nations issuing US dollar debt with large current account deficits and low foreign currency reserves, such as India and Indonesia. Both countries have national elections this year.
By comparison, South Korea has been identified by Fitch as well positioned to handle the impact of tapering as it has been reducing its reliance on dollar-denominated financing since the country's economy and the won were badly bruised in the global financial crisis.
Fitch has stable outlooks on 14 Asia-Pacific countries, with negative outlooks for Japan, Mongolia and Malaysia. The firm currently rates China A-plus, Fitch's fifth-highest grade, and is predicting 7 per cent economic growth for the country this year.
Fitch considered non-performing loans and the exposure of state-run banks to guarantee them when assigning China's overall rating, Colquhoun said. The economy needed to rebalance as increases in credit availability and investment had been outstripping economic growth, he said.
