LONDON—Governments will benefit from the biggest inflation-driven drop in debt ratios in over 20 years, credit rating firm Fitch said on Wednesday, estimating it will slice around 5 percentage points off U.S. debt-to-GDP and 2 percentage points globally.
The effects on government debt ratios from 2022 inflation vary by region, with the smallest impact being forecast for the Middle East & North Africa, and the largest impact in sub-Saharan Africa.
Developed market sovereigns, in which inflation is forecast to push government debt ratios much lower than the median, include the United States at 5 percentage points of GDP, Britain at 4.6 percentage points and Canada at 4.1 percentage points.
Averaged out across all 120 countries Fitch rates, the drop is set be 2 percentage points, matching 2008 for the most significant inflationary effect in more than 20 years.
“It would be a stretch to claim that debt is being ‘inflated away’ at least at the global level, but higher inflation is definitely helping,” two of Fitch’s top sovereign analysts, James McCormack and Ed Parker, said in report.
