Moody’s does not believe in the Paris commitments. The American rating agency judged, this Wednesday, March 27, “unlikely” that France will meet its objective of reducing the public deficit to 2.7% by 2027, further estimating 10 billion additional savings in 2024 insufficient to “put the government back on the planned budgetary trajectory”.
The announcement of a slippage in the deficit to 5.5% of GDP (gross domestic product) in 2023 “makes it improbable” that the government will meet its objective of reducing the deficit to 2.7% of GDP by 2027 , “as provided for in its medium-term budgetary plan presented in September”, writes Moody’s in a press release, specifying that this is not a rating opinion strictly speaking.
These warning signals on public finances come one month before the next verdict from the rating agencies: on April 26, Fitch and Moody’s will give a new assessment of France’s capacity to repay its debt. A downgrade of the French rating could increase the cost of its borrowings and further strain public finances.
“Revenues lower than expected”
INSEE (National Institute of Statistics and Economic Studies) indicated on Tuesday that the deficit, at 5.5% of GDP in 2023, had exceeded by 15.8 billion euros and 0.6 percentage points, the government’s forecast which was 4.9%, further complicating the debt reduction objective displayed by the French Minister of the Economy. Bruno Le Maire nevertheless reaffirmed on Tuesday his “total determination” to return the public deficit below 3% in 2027.
“The larger-than-expected deficit is almost entirely due to lower-than-expected revenues,” Moody’s adds. This higher deficit “underlines the risks inherent in the government’s medium-term budgetary strategy, which is based on optimistic economic and revenue assumptions, as well as unprecedented reductions in spending”, judges the rating agency.
Furthermore, Moody’s considers it “unlikely” that the government will meet its objective of a deficit of 4.4% this year despite the savings in the 2024 budget and the additional cuts announced. Reducing the deficit by one percentage point in one year, excluding exceptional circumstances linked to Covid, “has only been done once since 2000”, recalls the agency. Moody’s also expects the level of public debt to rise “slowly” from 2024, exposing the country to interest-related costs “never seen in more than 20 years”.