CEE Sovereigns: Fiscal and rating impact from Covid-19 crisis

A growth contraction across the board and recently announced fiscal support packages will see a spike in fiscal deficits and debt ratios in 2020. This shouldn’t pose a problem for Bulgaria, Czech Republic and Poland thanks to moderate debt ratios, but could wipe out hard-achieved gains for Croatia, Hungary and Serbia over the last years. Despite a low debt stock, Romania’s 7.9% of GDP fiscal deficit will add to mounting fiscal concerns.

Domestic bond markets are poised to be the key avenue to finance higher budgetary needs, in some countries supported by central bank purchases (Croatia, Hungary, Poland and Romania). However, sovereigns will also turn to the Eurobond market and multilateral funding sources.

On ratings, CEE sovereigns, with all except for Serbia in investment grade territory, started favourably into 2020. Rating agencies had assigned eight positive outlooks (notably for Bulgaria, Croatia, Hungary and Serbia) and only one negative outlook (Romania) ahead of the crisis. With the onset of the crisis, upgrades appear unlikely, but we also don’t expect any downgrades for 2020. However, rating pressure is likely to ramp up in Romania where we could see Fitch moving the outlook to negative.