Debt: Fitch maintains France’s rating, Bruno Le Maire ‘determined’ to restore finances

After Moody’s on October 21, rating agency Fitch maintained France’s rating at AA-, six months after downgrading it, while concerned about the high level of government deficit.

While France boasts “a large, rich and diversified economy, strong and effective institutions and macro-financial stability (…), its public finances, and in particular its significant level of debt, represent a weak point in its ranking.” – the agency noted in a press release published this Friday. Economy Minister Bruno Le Maire “took note of Fitch’s decision” in a statement to AFP, saying he was “determined to restore France’s public finances.”

Not enough ‘savings’ in 2024

Fitch, which currently rates France among the best available at ‘AA-‘ – a sign that the country remains highly credible in the eyes of markets – nevertheless considered the debt reduction trajectory to be ‘limited’. “The draft budget for 2024 and the multi-year program provide for only a limited reduction in the budget deficit – from 4.9% in 2023 to 4.4% in 2024,” the rating agency notes.

Fitch adds that it expects a government budget deficit of 4.6% in 2024 due to “lower estimates (than the government) growth” and “the risk that savings (…) will not be achieved.”

To get public accounts in order from 2024, the government has ruled out tax increases and is instead betting on economic growth: the High Council of Public Finance considers the 1.4% forecast “high.” They also expect the end of exceptional measures to support households and businesses. In the first quarter of 2023, debt exceeded 3,000 billion euros, and France plans to borrow a record amount of 285 billion euros from the markets in 2024.

Fitch’s rating has a stable outlook, which means the agency has no plans to change it in the short term. But a “significant” deterioration in growth prospects, a drop in competitiveness or a widening deficit could have a negative impact on France’s rating, she warned.

Standard & Poor’s rating expected in early December

Fitch became the second agency to take a closer look at France this year, following Moody’s last Friday, which did not update its rating, and Standard & Poor’s (S&P) on December 1. While this had little impact on markets, Fitch’s downward revision of its financial rating last April was a warning shot.

The agency highlighted the “significant budget deficit and modest progress” in reducing it after three years of heavy government spending aimed at easing the Covid shock, inflation and social tensions over pension reform.

The government will still have to wait another month before breathing a sigh: S&P maintained its rating five months ago, but also maintained a “negative” outlook, so a downward revision of the rating is possible on December 1. If social tensions subside, the government will again be forced to take responsibility for parliament’s adoption of the “revenue” part of the budget, which provides for savings of at least 16 billion euros.

However, in a recent note, economist Sylvain Bersinger put the importance of ratings agency publications into perspective. “Theoretically, their decisions should have implications for the rates at which states take on debt,” but “this does not appear to be the case in practice,” he said.