France’s rating has stabilized at “AA” grade, according to the credit rating agency “Standard & Poor’s” (S&P) announced on Friday. The agency indicated that its decision was “mainly due to a review of the government’s budget strengthening strategy.” For his part, French Minister of Economy Bruno Le Maire told the weekly newspaper “Le Journal du Dimanche” that he “takes note of the decision” of the agency, considering that it constitutes a “positive signal,” adding that “our public financial strategy is clear, ambitious and credible.”
Agency kept Credit rating “Standard & Poor’s” (S&P) on Friday at France’s “AA” rating, unchanged, based on Paris “arguments” that point to planned cuts in the deficit and the recent reform of the pension system that Emmanuel Macron’s government wants.
The agency indicated that its decision “is mainly due to a review of the strategy to strengthen the government budget,” noting positive points in addition to the pension reform, including the scheduled date for ending energy aid with the decline in fuel prices.
The “AA” rating is the highest in the rating scale and denotes a strong debt repayment capacity. In Europe, the ratings of Germany and the Netherlands (AAA) are the highest among countries. France lost it in 2012.
S&P adopts a 20-degree scale, headed by “AAA”, which is the best possible rating, and the last of which is “D”, which is synonymous with debt default.
French Economy Minister Bruno Le Maire told the weekly newspaper Le Journal du Dimanche that he had “taken note of the agency’s decision”, considering it a “positive signal”. He added, “Our public financial strategy is clear, ambitious and credible.”
He said that on June 19 he would announce the first billion euros of savings for the 2024 budget. He had announced the end of subsidies for gas, whose prices have fallen.
For his part, Ennahda MP Jean-Rene Cazeneuve, General Rapporteur of the Budget, affirmed, “This sign salutes the solidity of our economy and the change efforts we have made, and confirms the course of public finance recovery that we have followed.”
But Standard & Poor’s, one of the three major credit rating agencies along with Fitch and Moody’s, maintained at the same time its outlook for a “negative” outlook which could lead to a downgrade in the future.
The agency warned of “risks” related to implementing government budget targets. In this context, she pointed to “the absence of an absolute majority in the French Parliament since mid-2022, which may complicate the implementation of policies, the state of uncertainty in the global and European economies, and the tightening of financing conditions.”
“The political division adds uncertainty to the government’s ability to formulate policies conducive to economic growth and rebalancing the budget,” she added.
The agency “Fitch” downgraded France last month, thus punishing Paris for its management of state finances and the recent social crisis.
French officials have been watching the agency’s analysis, fearing for their image as good managers and reformers since Emmanuel Macron assumed the presidency. A downgrade would have been a setback for them.
Le Maire confirmed on Wednesday that he had met with the US agency to present the French “arguments”, which he considered “convincing”.
Based on the numbers, France’s performance results appear to be worse than other countries in the same category, as noted by Fitch, which downgraded France’s rating at the end of April from “AA” to “AA-negative”.
And “Standard & Poor’s” said that the volume of public debt will remain above 110 percent of GDP in the period 2023-2026, “with a continuing budget deficit, despite its decline.”
The debt represented 111.6 percent of GDP in 2022. The French government hopes to reduce this proportion to 108 percent in 2027.
France is the most indebted among countries in the same category (AA), with a public debt of about three thousand billion euros.
And after reaching 4.7 percent in 2022, the French public deficit is supposed to rise slightly this year to 4.9 percent before gradually declining from 2024, as the government expects in its stabilization program that it published in recent weeks and talks about a return to European budget rules. (deficit of less than 3 percent) in 2027.
However, it seems that these estimates did not convince “Standard & Poor’s”, which did not talk about estimates for 2027, but it is counting on a deficit of 3.8 percent in 2026 after 4.6 percent between 2023 and 2025. Its previous estimates were 4.9 percent for these years.
As for growth, S&P expects it to rise 1.2 percent annually, on average, between 2023 and 2026, compared to 1.5 percent in its previous estimates.
And the government’s fears stem from the danger posed by lowering the country’s credit rating in many cases, represented by high interest rates on borrowing by investors who demand additional guarantees for lending to France.
But it seems that the markets are not afraid that France will not repay its debt, so the Fitch rating downgrade did not actually affect the French borrowing rates.