From S&P:
Ratings On The State of Western Australia Affirmed At ‘AA+/A-1+’ And Removed From CreditWatch Negative; Outlook Negative• Recent sharp falls in iron ore prices have significantly weakened the outlook for Western Australia’s mining royalty receipts and budgetary performance.
• In fiscal 2016 and 2017, we expect the state to run cash operating deficits, before it eventually receives a higher share of Australia’s GST revenue and achieves small operating surpluses.
• We are affirming our ‘AA+’ long-term and ‘A-1+’ short-term ratings on Western Australia and removing them from CreditWatch negative.
• The outlook is negative, reflecting our view that there is a one-in-three chance that the rating could be lowered. Sustained operating deficits on a cash basis, due to revenue collections weakening even further, or the government’s failure to constrain its spending growth to be broadly in line with its targets are likely to pressure on the ratings on the state.
I am starting to get a real sense of what it must have been like for those half honest folks that thought the ratings agencies would stamp AAA on assets structured by cows before the GFC.
The WA budget is a work of complete fiction. Its economic outlook has zero credibility not just on commodity price forecasts but every major macro metric.
To affirm its rating at this point is signing off on the Titanic.
