Ratings agencies warn the next government on AAA credit rating
With the election looking likely to result in the first hung parliament since 2010, where either the Coalition or the ALP will have to rely on the support of minor parties and independents to form government, the three ratings agencies have put whoever wins on notice that Australia’s AAA credit rating is at risk if they squib on budget repair in the horse trading.
Standard & Poor’s said no clear result in the election had “decreased visibility” on the future of the budget. It warned the rating could be lowered if “parliamentary gridlock on the budget continues” regardless of who wins in the next few days.
Similarly, ratings agency Moody’s has issued a warning for whoever wins Saturday’s election.
“Moody’s expects fiscal consolidation to remain a key policy objective of the new government, when it is formed,’’ said Marie Diron, Moody’s senior vice president.
Ms Diron indicated Moody’s would be watching carefully to see if the next government was on track to restoring the surplus and reducing debt.
“The electoral outcome would affect the sovereign credit profile only if it changed broad policy priorities and the effectiveness of their implementation,’’ she said.
“Looking ahead, trends in Australia’s credit profile will be determined by whether fiscal objectives are effectively implemented, whether external financing conditions remain favourable and how housing market developments affect domestic growth and financial conditions.”
She said she expected Australia’s economic momentum would remain robust with a weaker Australian dollar and the resilience of private consumption in an environment of stable unemployment and low interest rates supporting GDP growth.
Fitch also warned that the credit rating could be at risk.
“Political gridlock that leads to a sustained widening of the deficit would put downward pressure on the rating, particularly if the economic environment deteriorates,’’ the agency’s Asia-Pacific sovereigns group director Mervyn Tang said.
The ratings agencies weighed in after warnings over the weekend from the former Treasurer Peter Costello and leading economists that the political impasse following Saturday’s election could result in a ratings downgrade.
This also coincide with ratings agencies cutting Britain’s credit ranking following the shock Brexit vote.
by Leon Gettler, July 5th 2016
