The Asia Pacific credit outlook is stable against the backdrop of contained government liquidity risks, broadly stable debt dynamics and generally sound external positions, said Moody’s recently.
APAC's GDP growth will stabilise close to potential levels and outperform other regions, despite higher global inflation and tighter financial conditions, said Nishad Majmudar, a Moody's Assistant Vice President and Analyst.
“With relatively robust nominal GDP growth and contained increases in the cost of debt, debt burdens have peaked and consolidation is underway, but at different paces,”Majmudar noted.
Most APAC governments have begun their fiscal repair, significantly unwinding their pandemic-related spending while their tax revenue continues to recover, Moody’s pointed out.
However, the Asia Pacific credit outlook is facing other uncertainties.
Social, political and economic pressures will delay fiscal consolidation in several countries, keeping fiscal deficits wider than pre-pandemic levels, the credit rating agency warned.
APAC's easing of the last remaining pandemic-related border restrictions on leisure travelers and ongoing domestic reopening will sustain services-sector recoveries and catch-up consumption across the region, Moody’s said.
In particular, China's (A1 stable) relaxation of border controls will, over time, lift tourist arrivals in the region, the firm added.
In addition, financing conditions for APAC sovereigns will be tighter in 2023 than 2022 overall, according to Moody’s.
Still, the pace of interest-rate hikes in the US and Europe will likely decelerate as inflation peaks, lowering the pressure on APAC central banks to tighten policy or to mitigate currency depreciation pressures, Moody’s predicted.
A key risk to the APAC sovereign outlook is the potential for China's economic growth staying weaker for longer, although Moody's baseline expectation is for Asia's largest economy to accelerate modestly in 2023, the firm said.
And lower-rated frontier markets such as Laos (Caa3 stable) and Pakistan (Caa1 negative) may face acute challenges amid heightened liquidity and currency depreciation pressures, according to Moody’s.
Furthermore, domestic political and geopolitical risks, in particular rising US-China tensions, could also threaten the stable credit outlook for the region's sovereigns, the firm added.