Most APAC governments have begun their fiscal repair, significantly unwinding their pandemic-related spending while their tax revenue continues to recover. But social, political, and economic pressures will delay fiscal consolidation in several countries, keeping fiscal deficits wider than pre-pandemic levels, as per a report by Moody’s.

US-based investors service Moody’s has provided a stable rating for Asia Pacific (APAC) sovereigns’ credit outlook in 2023, mainly due to the region’s broadly stable debt dynamics, contained government liquidity risks, and generally sound external positions. APAC’s growth, debt affordability, and financial stability is expected to stay strong in 2023.

In addition, financing conditions for APAC sovereigns will be tighter in 2023 than 2022 overall. Still, the pace of interest-rate hikes in the US and Europe will likely decelerate as inflation peaks, lowering the pressure on APAC central banks to tighten policy or to mitigate currency depreciation pressures.

A key risk to the APAC sovereign outlook is the potential for China’s economic growth staying weaker for longer, although Moody’s baseline expectation is for Asia’s largest economy to accelerate modestly in 2023. And lower-rated frontier markets such as Laos (Caa3 stable) and Pakistan (Caa1 negative) may face acute challenges amid heightened liquidity and currency depreciation pressures. Furthermore, domestic political and geopolitical risks, in particular rising US-China tensions, could also threaten the stable credit outlook for the region’s sovereigns.

“APAC’s GDP growth will stabilise close to potential levels and outperform other regions, despite higher global inflation and tighter financial conditions. With relatively robust nominal GDP growth and contained increases in the cost of debt, debt burdens have peaked, and consolidation is underway, but at different paces,” said Nishad Majmudar, Moody’s Assistant vice president and analyst.

Fibre2Fashion News Desk (DP)