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Moody's changes outlook on China's Aa3 government bond rating to negative from stable

02 March 2016 08:42 (UTC +04:00)

Baku - APA-Economics. Moody's Investors Service has today changed the outlook to negative from stable on China's government credit ratings, while affirming the Aa3 long-term senior unsecured debt, issuer ratings, and (P)Aa3 senior unsecured shelf rating, APA-Economics reports citing to Moody’s website.

The key drivers of the outlook revision are:

1. The ongoing and prospective weakening of fiscal metrics, as reflected in rising government debt and in large and rising contingent liabilities on the government balance sheet.

2. A continuing fall in reserve buffers due to capital outflows, which highlight policy, currency and growth risks.

3. Uncertainty about the authorities' capacity to implement reforms -- given the scale of reform challenges -- to address imbalances in the economy.

At the same time, China's fiscal and foreign exchange reserve buffers remain sizeable, giving the authorities time to implement some reforms and gradually address imbalances in the economy. This underpins the decision to affirm China's Aa3 rating.

In addition, government debt has risen markedly, to 40.6% of GDP at the end of 2015, according to our estimates, from 32.5% in 2012. The agency expects a further increase to 43.0% by 2017, consistent with an accommodative fiscal stance that will likely involve higher government spending and possible reductions in the overall tax burden.

China's foreign exchange reserves have fallen markedly over the last 18 months, to $3.2 trillion in January 2016, $762 billion below their peak in June 2014.