Singapore, May 24: America’s Credit rating agency Moody downgraded China’s credit rating from Aa3 to A1 in twenty five years due to country’s increasing debt.
The outlook of China changed to stable from negative on the basis of balanced risks.
“Moody’s expects that economy-wide leverage will increase further over the coming years. The planned reform programme is likely to slow, but not prevent, the rise in leverage,” Moody’s said in a statement here.
“The importance the authorities attach to maintaining robust growth will result in sustained policy stimulus, given the growing structural impediments to achieving current growth targets. Such stimulus will contribute to rising debt across the economy as a whole,” it said.
The statement said that the China’s financial strength would “erode somewhat over the coming years, with the economy-wide debt continuing to rise as potential growth slows”.
China’s economy grew down from of 6.7 per cent in 2016, as compared with 6.9 per cent in the previous year.
Moody’s expected the government’s debt would rise toward 40 per cent of GDP by 2018 and 45 percent by the end of the decade.
Due to increasing bank loans, bonds issued by Local Government Financing Vehicles it is expected contingent and indirect liabilities to rise.
In this regard, the report noted that the financial sector in China remained underdeveloped despite recent reforms.
“Pricing of risk remains incomplete, with the cost of debt still partly determined by assumptions of government support to public sector or other entities perceived to be strategic,” it said.