Beijing: Moody's Investors Service cut its outlook for Chinese sovereign bonds to negative, according to a statement released on Tuesday.
Moody’s scaled down its outlook to negative from stable while retaining a long-term rating of A1 on China’s sovereign bonds, as the high fiscal expenditure to support local governments and state-owned companies is posing downside risks to the nation’s economy, the rating agency said.
The Chinese government has been taking recourse to increased borrowing in order to increase its fiscal stimulus to rev up a slowing economy.
In October, Chinese President Xi Jinping signaled that a sharp slowdown in growth and lingering deflationary risks won't be tolerated, as the government increased its headline deficit to the largest in three decades.
The government’s fiscal deficit has risen to a record high and is currently hovering at 3.8 per cent GDP for the current year, up from 3 per cent in previous years, as the government issued more bonds to raise funds to boost the economy.
The revision allowed the central government to sell 1 trillion yuan of additional sovereign bonds within the year to support disaster relief and construction. Local governments were also selling special re-financing bonds to swap some off-balance sheet debt carrying higher costs.
Earlier this year, Fitch Ratings Ltd. said in an interview with Bloomberg television earlier this year that it may reconsider China's A+ sovereign credit score. The firm recently affirmed such a rating with a stable outlook.
S&P Global Ratings has kept China's ratings at A+ with stable outlook since its last downgrading in 2017 that followed a similar move by Moody's.