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Debt: Moody’s ratings agency warns against reversing pension reform

Debt: Moody’s ratings agency warns against reversing pension reform

Debt: Moody’s ratings agency warns against reversing pension reform

It is one of the measures the New Popular Front (NPF) intends to take if it comes to power, but it could have implications for France’s financial health. Ratings agency Moody’s warned on Tuesday that the reversal of the pension reform, as well as the government’s reduced appetite for savings, could have a negative impact on France’s ratings.

The agency, which currently assigns an Aa2 rating with a stable outlook, warns that the outlook could be downgraded to negative depending on the impact of political negotiations on the fiscal or growth trajectory.

Without a clear majority, “passing legislation will certainly be difficult,” the agency also warns. “Given the constraints” the new government must contend with, “fiscal consolidation through spending (cuts) in 2025” is “unlikely,” Moody’s said in a commentary. Revenue growth is also “unlikely.”

The election results are unfavourable for France’s ability to borrow on favourable terms, the agency also believes.

Note: “under pressure”

Responsible, like its peers Fitch and S&P, for assessing countries’ ability to repay their sovereign debt, the agency is mainly concerned about a possible increase in the cost of interest paid on the debt. Following the dissolution, Moody’s has already warned that the decision could “increase risks” to France’s budget control and therefore its rating.

“The government’s weakening commitment to fiscal consolidation will increase adverse pressure” on lending, the agency said. France’s 10-year interest rates were little changed after the second round of legislative elections but rose more sharply after the first round.

The reversal of reforms “such as labor market liberalization and pension reform” would put pressure on the rating if it affected the country’s economic growth or fiscal trajectory.

S&P Global had already warned on Monday evening that France’s credit rating would come “under pressure” if the country “fails to reduce its large government deficit.” The US agency downgraded France’s rating from the third notch of “AA” to the fourth notch of “AA-” in late May, months after it announced a much larger-than-expected government deficit.

Source: Le Parisien

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