Barthélémy Philippe, edited by Yanis Darras
11:47 a.m., November 24, 2022
It is an anxious IMF that calls on France to clean up its public finances. The country, in debt to almost 3,000 billion euros, worries to the point that the rating agency Fitch would consider downgrading the country from a double A rating to a single A. But how is this score decided? And what is it for? Europe 1 takes stock.
Tariff shield, whatever the cost… The International Monetary Fund (IMF) calls on France to clean up its public finances. With a debt approaching 3,000 billion euros, the IMF fears that the French deficit will widen further in 2023. Worse, this Wednesday, the firm “Standard and Poor’s” announced, for the first time in nearly two years, a downturn in activity in France.
And the American cabinet is not the only one to see red for France. Already last week, the rating agency Fitch was considering downgrading France from a rating of a double A to a single A. A reduction in rating which could actually affect investor confidence. This rating is crucial for the country, but how is it decided? And how do these rating agencies work?
Assess repayment capacity
Rating agencies are private bodies serving investors who buy corporate or government debt on the financial markets. They are responsible for assessing the repayment capacity of borrowers, whether companies, local authorities or States. The higher the risk of default, the more the rating deteriorates and vice versa.
The triple A rating defines a good capacity to repay its loans, a triple B for an average capacity and so on up to the D rating reserved for bankrupt borrowers. And if these rating agencies are feared by the States, it is because they have a direct influence on the possibility of the States to borrow. Thus, a lower rating translates into higher risks on the repayment of government bonds and drives up interest rates.
Source: Europe1
I am a journalist who writes about economics and business. I have worked in the news industry for over 5 years, most recently as an author at Global Happenings. My work has focused on covering the economy news, and I have written extensively on topics such as unemployment rates, housing prices, and the financial crisis. I am also an avid reader and have been known to write about books that interest me.
