French Departments Posted Solid 2020 Results but Downside Risks Linger
This commentary provides a short summary of where French departments stand as the DGCL published preliminary 2020 consolidated accounts. This represents a follow-up commentary to the one published by DBRS Morningstar on 25 November 2020 "".Key highlights include:
• Despite the Coronavirus Disease (COVID-19) pandemic, French departments maintained a sound operating performance in 2020 with limited COVID-19-related extraordinary central government support, and at the same time contained their recourse to debt.
• Downside risks remain high in 2021 and 2022 stemming from their social responsibilities such as pressure on the minimum income allowance ("RSA") and the fact that departments lost all their tax rate flexibility with the replacement of the property tax by a share of national VAT.
• Significant financial disparities exist among French departments and some are already under strong financial pressure. However, DBRS Morningstar believes French departments are likely to receive additional financial support from the central government, in case their financial situation deteriorates.
"French Departments' 2020 financial performance was above expectations, buoyed by property transfer fees. But downside risks are high for 2021 and 2022, especially given limited budgetary flexibility" notes Mehdi Fadli, Vice President in the Global Sovereign Ratings Group.
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