• Fitch downgrades France's rating from AA- to A+, the lowest on record.
• The downgrade reflects rising debt and political instability in the country.
• New Prime Minister Sébastien Lecornu faces challenges in drafting a budget.
• France's deficit stands at 5.8% of GDP, with projected debt rising to 121% by 2027.

On September 12, Fitch downgraded France's long-term foreign-currency issuer default rating from "AA-" to "A+", the lowest credit score the country has received from a major agency, amid mounting political crisis and ballooning debt. Fitch cited a lack of clear stabilization of debt and ongoing political instability as primary factors for the downgrade, which could impact the country's ability to respond to future economic challenges, according to Reuters.

The situation has become precarious for Prime Minister Sébastien Lecornu, who was appointed just days before the downgrade, following François Bayrou's resignation after losing a confidence vote. This political upheaval, including the inability to pass an austerity budget, emphasizes the fragmentation of domestic politics, which Fitch described as weakening the government's capacity for substantial fiscal consolidation. "This instability weakens the political system's capacity to deliver substantial fiscal consolidation," Fitch stated, reflecting the challenges ahead for Lecornu, according to Reuters, Le Monde, and India Times.

In recent months, France has seen its budget deficit escalate to 5.8% of GDP and its public debt soar to 113% of GDP, far beyond the eurozone thresholds of 3% and 60%, respectively. Fitch projects that unless urgent corrective measures are implemented, France’s debt could rise to 121% by 2027, indicating a persistent negative outlook for public finances. "The downgrade is a punishment for decades of fiscal mismanagement," remarked the outgoing interior minister, underscoring the urgency for decisive action, according to The Jakarta Post, Reuters, and India Times.

The path forward for Lecornu involves drafting a new budget that addresses these economic challenges while navigating a deeply divided parliament. This will likely involve making concessions, such as higher taxes on the wealthy and revisiting recent pension reforms, which could alienate varying factions within the legislative body. Given the current climate, analysts have warned that without substantial legislative support, serious attempts at fiscal consolidation may be undermined, according to Reuters, Le Monde, and India Times.