International credit rating agency Standard & Poor's (S&P) downgraded France's sovereign credit rating for the first time in 11 years, citing a deterioration in the country's fiscal condition.
According to Bloomberg and other sources, S&P lowered France's sovereign credit rating from 'AA' to 'AA-' on the 31st of last month (local time). This is the first time in 11 years since 2013 that S&P has downgraded France's sovereign credit rating.
S&P downgraded France considering that the country's fiscal deficit is expected to exceed 3% of its Gross Domestic Product (GDP) in 2027. S&P explained that France's fiscal deficit last year was 5.5% of GDP, significantly higher than previous forecasts. Additionally, S&P noted that France's general government debt is expected to increase from 109% of GDP last year to 112% in 2027, contrary to earlier projections. However, France's sovereign credit rating outlook remains 'stable.'
Bruno Le Maire, France's Minister of Finance, cited the massive fiscal spending during the COVID-19 pandemic to support households and businesses as the main reason for the downgrade, telling local media, "It is because we saved the French economy." He also reaffirmed the goal of keeping the public sector deficit below 3% by 2027.
France's fiscal deficit is assessed to have increased faster than initially expected due to economic sluggishness and a shortfall in tax revenues. The French economy barely grew in the second half of last year due to inflation hitting households hard and the burden of high interest rates on investment.
Although the Ministry of Finance attempted to address fiscal deterioration through additional spending cuts this year, Bloomberg pointed out that these measures were insufficient.
Meanwhile, on the same day, S&P also downgraded the credit ratings of the three Baltic states (Lithuania, Estonia, Latvia). Estonia's credit rating was lowered from 'AA-' to 'A+,' while Lithuania and Latvia's ratings were downgraded from 'A+' to 'A-.' The credit rating outlooks for all three countries remain 'stable.'
S&P explained the reason for the downgrade of the three countries' credit ratings by stating, "We assess that the impact of the war in Ukraine and broader geopolitical risks in the region will affect the Baltic region's medium-term economic growth, public finances, and competitiveness."
The three Baltic states were hit hard by inflation that struck the European Union (EU) following the pandemic and Russia's invasion of Ukraine. While inflation rates in other EU member states were around 9%, inflation in the Baltic states exceeded 20%.
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