The dual effects of the coronavirus (COVID-19) pandemic and the major dip in oil prices will place a strain on the credit and ratings of certain countries, according to global rating agency Fitch Ratings.
"While the economic impact of an oil shock may last longer than from COVID-19, some of the effects of the pandemic are likely to linger, especially in sectors such as travel and tourism. Thailand, Croatia and Iceland are among the most tourism-dependent sovereigns," the agency said on Twitter on Monday.
Tax collections will decline in the near term and budget demands on governments will increase, Fitch said, adding that few countries have already declared fiscal measures while the agency expects the list of countries in difficulty to expand.
Considering the importance of public finances to country credit profiles, such ratings can migrate as a result of fiscal expansion, Fitch said. It added that public finances in G7 countries – Canada, France, Germany, Italy, Japan, the United Kingdom and the United States are among the weakest relative to rating peers.
"The rating focus will also be on the extent to which monetary easing contributes to further debt accumulation, particularly in countries where high debt was already a concern prior to the pandemic," it added.
Emerging markets also face potential threats related to revenues from commodity exports, financial flows and strains on the exchange rate, according to Fitch. The agency said dependence on the commodity is the most pronounced in Angola, Iraq, Suriname and Gabon.
"Investor sentiment can ultimately affect capital flows, with the largest external funding requirements in 2020 exhibited by Brazil, India, Turkey and Poland. Brazil is also one of the sovereigns with the largest currency depreciation since end-2019," Fitch said.
