Home / News / India /  FM Sitharaman claims rating downgrades will reduce policy options for developing countries

Finance minister Nirmala Sitharaman on Saturday criticized the sovereign rating downgrades by credit rating agencies holding that this may limit policy options for emerging market economies in their fight against coronavirus pandemic.

Speaking at the G20 finance ministers and central bank governors virtual meeting under the Saudi Arabia presidency, Sitharaman said “pro-cyclicality of credit rating downgrades by the rating agencies and its deterrent impact on policy options, particularly for EMEs," the finance ministry said in a statement.

Moody’s Investors Service last month downgraded India’s sovereign rating by a notch to the lowest investment grade with negative outlook holding that implementation of reforms has been relatively weak and hasn’t resulted in material credit improvements, indicating limited policy effectiveness. Fitch Ratings later revised India’s credit outlook to negative from stable with lowest investment grade. S&P Global Ratings has however retained stable outlook for India with lowest investment grade rating hoping that the country’s economy and fiscal position to stabilize and begin to recover from 2021 onwards.

Sharing her perspective on the way forward on the G20 action plan, Sitharaman highlighted the need for international coordination required in addressing the spill-over effects of exit strategies. “Emphasising that the Action Plan needs to reflect how the economies are balancing their supply side and demand side measures in response to COVID-19, Sitharaman shared with her counterparts how India is working on ensuring this balance through credit schemes for greater liquidity, direct benefit transfers, and employment guarantee schemes," a finance ministry statement said.

Referring to the international taxation agenda and the intended deliverable of formulating a solution for addressing challenges related to digital taxation, Sitharaman noted the progress on the agenda and said that it is imperative that this consensus based solution should be simple, inclusive and based on a robust economic impact assessment.

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