India not alone to get Moody’s downgrade tag

NEW DELHI: A clutch of over 30 countries, including India, has seen ratings downgraded or outlook changed by global ratings agency Moody’s Investors Service this year as the Covid-19 pandemic smothered economies across the globe and governments stepped up spending to protect growth and provide relief.

On Monday, Moody’s downgraded India’s sovereign rating a notch to Baa3, which is still investment grade, and retained its outlook as negative, citing slow reforms, policy makers facing rising challenges from a prolonged period of slower growth, rising government debt and weakening debt affordability and stress in the financial system.

South Africa, part of the BRICS group of countries, witnessed its ratings downgraded on March 27, while France saw a change in its outlook. Hong Kong and Mexico have also faced downgrades. Thailand, Israel and Saudi Arabia have also seen their outlook change. Argentina, which is grappling with a debt crisis and faces a contraction of 2.2% in its GDP growth, was downgraded by Moody’s on April 4.


Several economists said Moody’s had jumped the gun to upgrade India in June 2017, taking the government’s promise of reforms and prospects of growth to move ahead of other ratings agencies such as Fitch and S&P. Now, with Monday’s downgrade, it is in line with the ratings of the other agencies.

“The ratings downgrade by Moody’s is not a surprise as the agency had already downgraded India’s outlook to negative from stable in November 2019 on concerns of lower economic growth, weak reform traction and stressed financial sector. The worsening of fiscal position in Q4FY20 and the external Covid-led shock was a final nail, which led to Moody’s rating on par with peers on India’s rating status,” Madhavi Arora, economist at Edelweiss Securities, said in a note.

Financial markets were muted in their reaction to the Moody’s downgrade as indications from the agency had prompted them to price in the possibility. Now, all eyes are on the action that S&P and Fitch take. Economists said emerging markets are seen to be more prone to downgrades. “So far, around 21 emerging and developing countries have registered either a rating and/ or outlook downgrade by the agency,” said Soumya Kanti Ghosh, group chief economic adviser at SBI.