Asia-pacific sovereign debt levels set to climb through 2026

September 10, 2024 (MLN): The median level of general government (GG) debt/GDP among sovereigns in the Asia-Pacific (APAC) will rise in 2024-2026, with an upward trajectory among both developed and emerging markets, says Fitch Ratings.

Limited progress on fiscal consolidation will flatter the region’s economic growth performance relative to other regions with more fiscal consolidation.

Many APAC governments have prioritised growth and cushioning the public from the effects of the global inflation spike over reducing budget deficits since the Covid-19 pandemic.

The median level of GG debt/GDP among rated sovereigns in the region was 51.2% in 2024, well above the 38.3% level in 2019.

Pandemic-related challenges are receding, and we forecast APAC as a whole to be the second-fastest growing region globally over 2025-2026, after Sub-Saharan Africa, with median real GDP growth averaging 5.1%.

However, Fitch still expects median debt to rise to 52.5% by 2026. Fitch projects debt/GDP will increase in 11 sovereigns – over half of our rated portfolio.

The rise will be sharpest in China (A+/Negative), at 5.4pp, but we also project increases of over 2pp in Australia (AAA/Stable), the Maldives (CC), New Zealand (AA+/Stable) and Thailand (BBB+/Stable).

Limited progress on restoring fiscal headroom while macroeconomic conditions are relatively benign could leave some sovereigns with less capacity to respond to future external shocks before their Long-Term Foreign-Currency Issuer Default Ratings are affected.

Some of those whose debt the entity expects to rise in the next two years could face downward ratings pressure.

In China, for example, a medium-term upward trend in debt/GDP could result in negative rating action, as it stated in previous rating assessments.

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