The Covid-19 pandemic and the war in Ukraine are having a persistent impact on public finances in emerging Europe, Report informs, citing Fitch Ratings.
For the bulk of the region, end-2025 government debt/GDP will be above the end-2019 level (by a median of 6pp), according to Fitch Ratings’ latest Sovereign Data Comparator that extends forecasts to 2025. The sovereigns that Fitch expects will post the largest increase in debt/GDP in this period (aside from Ukraine) are the two highest-rated: the Czech Republic and Estonia (both ‘AA-’ with Negative Outlooks). Fitch expects only five sovereigns to reduce debt by more than 3% of GDP between 2019 and 2025. Of these, Azerbaijan and Turkmenistan (both with Positive Outlooks) benefit from high energy prices, and Armenia (Positive Outlook) from exchange-rate appreciation. The others are Croatia and Serbia (Stable Outlooks), where primary surpluses and reasonably solid nominal GDP growth will prolong the debt-reduction trend that existed pre-pandemic.
Median government debt/GDP for the region fell in 2022, reflecting high inflation, and Fitch forecasts it to fall further in 2023 due to lower support to consumers to offset food and energy costs. However, median debt/GDP is then projected to rise in 2024 and 2025, reflecting continued primary deficits and lower nominal GDP growth.