Credit rating agency Fitch lowered China’s credit rating outlook on Wednesday.

The agency issued a statement saying “risks to the outlook for China’s public finances are increasing,” lowering its outlook to negative from stable.

Fitch expects China’s government deficit to rise to 7.1% of GDP this year, compared with 5.8% in 2023. The deficit in 2024 is expected to be the highest since 2020, when the government’s COVID-19 pandemic control measures took a toll on the economy.

Policymakers in Beijing are trying to steer the country’s economy back on track after the liquidation of Chinese developer Evergrande Group earlier this year triggered a slump in the real estate sector. Evergrande Group defaulted on more than $300 billion in debt in 2021.

“From a ratings perspective, large fiscal deficits and rising government debt have eroded fiscal buffers in recent years,” Fitch said in a statement.

Fitch’s downgrade follows a similar move by rival Moody’s in December. However, Fitch Ratings continues to maintain its A+ rating on China’s sovereign bonds.

China’s Ministry of Finance issued a statement expressing regret for Fitch’s decision to lower China’s credit rating outlook. The agency’s approach failed to “effectively and proactively reflect the government’s efforts to promote economic growth,” the ministry said.

The ministry statement added that maintaining “a moderate deficit and making good use of precious debt funds will help expand domestic demand, support economic growth and ultimately maintain good sovereign credit.”

Some information for this report comes from the Associated Press, Reuters, and AFP.