Finance Ministry defends China’s 3% deficit ratio as prudent amid credit outlook revisions

A view of global credit rating institution Fitch Ratings headquarters in New York, U.S., April 6, 2015. /CFP

A view of global credit rating institution Fitch Ratings headquarters in New York, U.S., April 6, 2015. /CFP

China’s finance ministry on Wednesday defended the country’s fiscal strategy, affirming its 3 percent deficit ratio for 2024 as “moderate” and “rational” following Fitch Ratings’ downgrade of China’s credit outlook.

In responses to media questions published on its website, a ministry spokesperson said Fitch failed to recognize the anticipatory and long-term benefits of China’s fiscal policy adjustments aimed at high-quality development.

The official stressed the critical role of maintaining a moderate deficit and strategic debt utilization to fuel domestic demand and economic development, and ultimately preserve China’s sovereign credit reputation.

The ministry also highlighted the decision to set the 2024 deficit ratio at 3 percent aligns with a reasonable and pragmatic approach to foster stable economic growth and manage government debt effectively, which also provides adequate policy space to address forthcoming challenges and risks.

In terms of preventing and defusing local government debt risks, the ministry said the repayment of principal and interest on local governments’ legal debts is effectively guaranteed and hidden debts are being resolved.

Reflecting on the 5.2 percent GDP growth in 2023 and the government target of around 5 percent for this year, the ministry said China is committed to high-quality growth, reinforcing the positive momentum of China’s economy and its ability and unwavering commitment to maintaining a solid sovereign credit standing.

Fitch maintained China’s sovereign credit rating but shifted its outlook from “stable” to “negative” on Wednesday,  citing financial health concerns.