Moody’s has maintained its Aa3 rating, indicating ‘high-quality debt,’ following downgrades by Fitch on September 12 and S&P Global last week to A+, signaling ‘upper-medium-grade debt.’
Moody’s cited the “increased risk of ongoing fragmentation in the country’s political landscape, undermining the functionality of France’s legislative institutions” as a reason for altering its outlook.
The agency elaborated in a statement, indicating that “this political instability risks impeding the government’s ability to address key policy challenges such as the high budget deficit, rising debt burden, and escalating financing costs, which could lead to a more rapid deterioration of France’s main fiscal indicators than anticipated.”
Political divisions also heighten, according to the rating agency, “the risk of a permanent reversal of key elements of structural reforms adopted, particularly the pension reforms in 2023,” a commitment already made by Prime Minister Sébastien Lecornu.
Moody’s added, “If the suspension of this reform extends beyond a few years, it will exacerbate the government’s fiscal challenges and negatively impact the economy’s potential growth rate.”
Regarding the decision to maintain the rating instead of lowering it, the agency pointed to “France’s significant economic strength” and its “wealthy and diversified economy.”
Moody’s stated, “The financial solidity of households and companies, as well as the robustness of the banking sector, contribute to macroeconomic stability and the economy’s capacity to withstand crises. Moreover, France boasts highly competent public institutions, although the resilience of the institutional framework is being tested.”
The report also notes that “debt sustainability will gradually weaken, although starting from solid levels, as debt issued at very low rates matures and needs refinancing at higher costs.”
In response, French Finance Minister Roland Lescure highlighted on social media that the agency’s decision underscores “the absolute necessity of developing a path towards fiscal commitment.”
In his statement, Lescure affirmed that “the government remains committed to maintaining a deficit target of 5.4% of GDP for 2025 and to pursue an ambitious trajectory to reduce the deficit, bringing it below 3% of GDP by 2029, while preserving growth.”
Moody’s assessment was released on the same day the proposed budget for 2026, presented by Lecornu, was debated in the National Assembly.
Without clear majorities, Lecornu is compelled to seek support from both the left and right.
In this political spectrum, socialists demand increased taxes on large fortunes, and to appease them and avoid their support for censure motions, Lecornu has agreed to suspend the controversial pension reform of 2023.
