Insight Investment

“The global fiscal landscape is entering a period of heightened scrutiny and divergence. As debt burdens rise and political constraints tighten, the sustainability of sovereign finances is increasingly shaping market behaviour and investor decision-making.”

Fiscal fault lines: A global review of sovereign fiscal health

As fiscal dynamics become increasingly central to global investment decisions, understanding the sustainability of sovereign finances is no longer optional – it is essential. This paper offers a rigorous, data-driven assessment of fiscal sustainability across both developed and emerging markets, drawing on Insight Investment’s proprietary analysis and leading international sources.

Navigating a new era of fiscal divergence

Debt burdens are rising, political constraints are tightening, and the ability of governments to maintain fiscal discipline is under the spotlight. In this environment, the sustainability of sovereign finances is shaping market behaviour and investor decision-making as never before.

Our research maps out the evolving fiscal trajectories of major economies, highlighting the stark contrasts between countries with robust fiscal management and those facing mounting vulnerabilities. To do this we assess each country across a range of fiscal metrics, including:

• Fiscal balances
• Interest costs and financing needs
• Coupon rates and maturities
• Debt ownership
• Debt/GDP and liabilities
• Private debt and international holdings

We also explore a range of country specific issues through the paper.

From the persistent deficits of the US, China, and France to the improving balances of Norway, Ireland, and Portugal, we outline our view of the risks and opportunities that lie ahead.

Countries with unsustainable debt and weak reform momentum face growing fiscal vulnerabilities, which markets may pre-emptively price in through higher yields, steeper curves, wider spreads, and currency depreciation.