Fitch warns France on debt, affirms ratings

31st May 2011, Comments 0 comments

Fitch Ratings agency said Tuesday it had affirmed France's AAA rating but warned that the country still needs to do more to stabilise and then reduce its public debt.

Fitch said the top AAA rating was supported by France's "wealthy and diversified economy, its effective political, civil and social institutions, and its financing flexibility" as a major eurozone player.

At the same time, "continued fiscal consolidation is needed to stabilise and then start to reduce public debt, which reached 81.7 percent of Gross Domestic Product" at end-2010, it noted.

The EU limit for total debt is 60 percent of GDP but although France exceeds this measure, it compares favourably with most of its eurozone peers who have flaunted the rules and is committed to reducing the debt burden.

Fitch noted that France has also made progress in reducing its annual public or budget deficit, aiming to get it down to the EU limit of 3.0 percent of GDP by 2013 from 7.0 percent at end-2010.

It warned, however, that "material slippage from these targets would put downward pressure on France's AAA rating."

Fitch noted approvingly that Paris is trying to improve its public finances, taking a series of measures, among them pension reform and initiating legislation to require balanced budgets.

Fitch said there were also "a number of downside risks that may undermine the consolidation effort, including the prospect of fiscal slippage in light of the 2012 presidential elections, as well as optimistic government growth projections in the medium-term."

France should meet its budgetary targets in 2011 but "further efforts may be required to reduce the deficit to 3.0 percent of GDP by 2013," it said.

"Public debt is likely to stabilise at a higher level than prior to the crisis, leaving less space for the accommodation of future shocks to the economy," it added.

© 2011 AFP

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