American rating agency Fitch on Monday retained India’s sovereign rating at the lowest investment grade of “BBB-/stable”, saying the country will continue to post good growth despite subdued prospect for the Asia
Pacific region in a situation of “dollar strength in the context of an
expected rise in US (Federal Reserve) rates and lower commodity prices.
“India and Vietnam have favourable
macroeconomic prospects, partly reflecting lower exposure to some of the
negative pressures affecting the region; however, weaknesses in their
public finances have deterred us from taking positive ratings action,”
Fitch said in a report titled “Emerging Asia Sovereign Outlook 2016″.
“Dollar strength in the context of an
expected rise in US rates, still-sluggish global trade growth and lower
commodity prices pose a challenging set of circumstances for Emerging
Asia in 2016 – which partly explains why the high growth rates of the
mid-2000s look out of reach,” it said.
The report said the US Federal Reserve
is largely expected to make its first rate hike in almost a decade
during its upcoming two-day meeting beginning on Tuesday, which would
act as headwinds for emerging Asian economies.
Emerging Asia’s growth in 2016 is
expected to slow to 6.3 percent, from 6.5 percent, mostly due to the
projected slowdown in China.
Fitch said that excluding China and
India, the region is projected to expand 5.2 percent in 2016, from 5
percent, which it said would be the fastest for any emerging region.
Moreover, emerging Asian external
balance sheets are generally stronger than in 1996, the year before the
onset of the Asian financial crisis.
“Sovereigns are generally much less
reliant on foreign currency financing, and many countries now have more
flexible exchange-rate regimes in place of the more prevalent use of
explicit pegs before 1997,” the report said.
Fitch said in a report last week that
India’s economy will grow by 7.5 percent in the current fiscal that will
stand out globally, but warned that its business environment would
remain weak despite improvements.
The agency said a “BBB-” rating, the
lowest in the investment grade, along with a stable outlook and a strong
medium-term growth prospect and favourable external finances, will
balance out with high government debt, weak structurals and a difficult,
but improving, business environment.
It said while India’s sovereign ratings
continued to be constrained by the limited fiscal space of the
government, the 23.6-percent salary hike recommended by the 7th Pay
Commission has raised doubts about the feasibility of the medium-term
consolidation path.
On inflation, it said, India’s
7.9-percent average in annual price rise over the past five years was
much higher than the 3.3-percent level among the peers with the same
rating. But the changes in the retail inflation profile strengthened
India’s sovereign credit profile.
Meanwhile, India’s annual retail and
wholesale inflation rates rose considerably in November to 5.41 percent
and (-)1.9 percent respectively, due largely to an increase in the
prices of food items like pulses, official data showed on Monday.
Source : IndianMediaBook - Current Affairs
