The rating agency assessed which countries faced the biggest problems from the coronavirus outbreak, noting that nations highly dependent on tourism were particularly vulnerable.

Governments and other issuers of sovereign debt have sufficiently fat financial buffers to cope with the coronavirus mayhem, but cracks could open up if the crisis endures beyond the first three months of this year, according to Fitch Ratings.

As already reported, the rating agency noted that the virus, now renamed COVID-19, is hammering the southeast Asian tourist trade, disrupting outward trips from China and hampering internal movements in the region. Countries which depend on tourist revenue, such as Thailand, Vietnam and Singapore, as well as regions like Bali in Indonesia, are being hit.

The report said that the virus is reducing trade flows in the Southeast Asian region, and softening commodity prices. It is also hurting consumer and business confidence around the world, Fitch said.

“We do not anticipate near-term rating actions as a result of the outbreak. Given the financial buffers, our rating outlooks for most sovereigns in the region are stable, or even positive in the Philippines (BBB), Thailand (BBB+) and Vietnam (BB),” Fitch said.

“So long as China's growth begins to recover quickly in the second half of 2020, the economic disruption associated with COVID-19 is likely to be contained. However, ratings pressure in countries with weak public finances could be aggravated if the effects of the outbreak extend beyond the first half of 2020,” it said.

At the time of this publication going to press, China reported 5,090 new cases in mainland China, including more than 120 deaths, taking the number of infected to 63,851, and the number of deaths to 1,380. (Reuters, 14 February). Outside China, there have been cases in countries such as the US, Singapore and the UK. In Singapore last week, for example, a whole floor of the main DBS banking building was evacuated after it was confirmed that a member of staff had the virus. Sports, entertainment, business and other events have been shut and disrupted around the world. This news service has also noticed that some of the regular announcements and business that it reports on have gone quiet as people focus on stopping the contagion.

Thailand
The virus will hurt Thailand because of its tourism and trade exposure. “We believe that the country's strong public and external finances are unlikely to weaken fundamentally, even in the case of an extended outbreak. However, if political stasis were to impede the government's ability to respond to the economic shock, this could be a negative signal about the country's governance, especially in light of the delay in this year's budget,” Fitch said.

Malaysia
The rating agency said that Malaysia (A-/Stable) could face a “difficult trade-off” in balancing ongoing efforts to shore up economic growth against its goal of consolidating its public finances. Weaker oil prices could undercut the government's capacity to meet its revenue targets, adding to the Pakatan Harapan coalition government's challenge of meeting its fiscal consolidation goals after the repeal of the GST in 2018. Debt reduction is an important driver of the sovereign rating, and policies or shocks that undermine progress could be negative.

Vietnam, Indonesia
Both Vietnam (BB/Positive) and Indonesia (BBB/Stable) have self-imposed debt or deficit rules that may limit their capacity to relax fiscal policy to support economic growth. Nevertheless, the virus outbreak could cause a short-term deterioration in their revenue performance through its effects on economic activity. Vietnam is exposed through the trade and tourism channels, while Indonesia's coal and gas exports could be hit by a sustained drop in commodity prices. Our assumption is that any deterioration in fiscal metrics would be short-lived, and the medium-term outlook for both economies remains strong, Fitch said.

Singapore, the Philippines
The rating agency said that the Philippines and Singapore (AAA/Stable) look “more insulated” from a credit perspective. 

“The Philippine economy is less reliant on tourism and its export base is diversified, which we believe should limit the effects of supply chain disruption and weaker demand in China. Singapore's services-oriented economy will suffer more severely, particularly if the effects of the outbreak extend well into 2Q20. However, any erosion of its financial and fiscal buffers linked to the disruption will likely be small relative to their total size,” Fitch said.