Fitch ash affirmed the AAA. Now from Moody’s:
- The government’s decision to maintain the objective of a balanced budget by 2020-21 denotes continued commitment to fiscal consolidation. However, meeting the fiscal targets will be difficult in an environment of weaker nominal GDP growth.
- Its decision to depart from standard practice to assume that commodity prices remain broadly unchanged around recent levels and instead to factor in a fall in commodity prices in the MYEFO denotes credit-positive fiscal prudence. We also do not assume that commodity prices will continue to rise at the pace seen in recent months.
- With the downward revisions in the MYEFO, the government’s projections for nominal GDP growth are now broadly in line with our forecasts. However, with nominal GDP growth revised lower from next year onwards, achieving the revenue collection and spending restraint envisaged in the MYEFO will be challenging. In particular, maintaining lower projected payments will be difficult in light of sizeable commitments in non-discretionary areas such as health, education, social welfare.
- Although progress has been made since the budget in implementing fiscal consolidation measures, this has been achieved mainly through appropriations and regulations. Legislating fiscal consolidation measures remains challenging.
- As a result, we expect that the budget deficits will be somewhat wider for longer than currently projected. Gross general government debt will rise in the next couple of years, to rise to around 42% of GDP in our projections. This is broadly in line with the median level of Aaa-rated sovereigns.
- With fiscal metrics broadly in line with other Aaa-rated sovereigns, Australia’s Aaa rating and stable outlook are also underpinned by very high shock absorption capacity of the economy and very strong policymaking institutions. Vulnerabilities include a potential correction in the housing market that would have a negative impact on the economy and the financial sector and possible shifts in global capital flows affecting the availability of Australia’s external financing. However, we believe that policymakers’ vigilance and effective response and the economy’s flexibility would mitigate the impact of such shocks and maintain Australia’s credit metrics consistent with its Aaa rating.
Cowards!
