Aus­tralia wards off rat­ing down­grade

Kuwait Times - - BUSINESS -

SYD­NEY: Aus­tralia avoided a feared down­grade of its cov­eted AAA credit rat­ing yes­ter­day af­ter stick­ing to its am­bi­tion of re­turn­ing the bud­get to sur­plus in 202021 de­spite softer growth fore­casts.

The coun­try’s re­sources-driven econ­omy has en­joyed more than 20 years of growth but it is now tran­si­tion­ing out of an un­prece­dented min­ing in­vest­ment boom, and the go­ing has been bumpy with rev­enues un­der pres­sure. In a mid-year fis­cal up­date, the gov­ern­ment re­vised down the na­tion’s cash deficit of Aus$37.1 bil­lion (US$27 bil­lion) in 2016-17 — as an­nounced in the May bud­get-to Aus$36.5 mil­lion.

But it fore­cast widen­ing deficits in the next three years be­fore a re­turn to sur­plus. “The gov­ern­ment’s plan to re­store the bud­get to bal­ance re­mains on track,” Trea­surer Scott Mor­ri­son said in a state­ment.

Higher iron ore and coal prices would help sup­port tax rev­enues, the up­date said, but this would be more than off­set by weaker wages and non-min­ing com­pany prof­its. Af­ter knife-edge elec­tions last year, Stan­dard and Poor’s warned Aus­tralia’s rat­ing could be low­ered if Can­berra did not im­prove its bud­get bal­ances and de­liver on sur­plus plans.

It said Mon­day the up­date had no im­me­di­ate ef­fect on its stance but warned the “gov­ern­ment’s wors­en­ing fore­cast fis­cal po­si­tion... fur­ther pres­sures the rat­ing”.

S&P said it would con­tinue to mon­i­tor the sit­u­a­tion and was “pes­simistic about the gov­ern­ment’s abil­ity to close ex­ist­ing bud­get deficits and re­turn to sur­plus by the year end­ing June 30, 2021”. Aus­tralia is one of only a hand­ful of coun­tries to hold the top AAA rat­ing from all three ma­jor agen­cies, hav­ing dodged a re­ces­sion dur­ing the global fi­nan­cial cri­sis. Moody’s and Fitch also kept their rat­ings on hold, for now. Gen­er­ally, los­ing the AAA means the na­tion would be forced to pay higher in­ter­est on its debt. Cap­i­tal Eco­nom­ics’ chief Aus­tralia econ­o­mist Paul Dales said “it prob­a­bly won’t be long be­fore one or two of the rat­ings agen­cies with­draw their AAA rat­ing”.

“The trea­surer has ad­mit­ted that in the four fi­nan­cial years start­ing 2016-17 the bud­get deficit will be around $10 bil­lion higher than fore­cast in May’s bud­get,” he said. “The chances of the bud­get be­ing bal­anced by 2020-21, which the rat­ing agen­cies want, has be­come even less likely.”

The con­ser­va­tive gov­ern­ment does not have a ma­jor­ity in the up­per house Se­nate, mean­ing it has strug­gled to pass some spend­ing cuts. This has stymied ef­forts to rein in debt and deficits, un­der­min­ing busi­ness and con­sumer con­fi­dence with reper­cus­sions for the econ­omy, which con­tracted 0.5 per­cent in the Septem­ber quar­ter. Given the poor quar­terly num­ber, the up­date changed the gov­ern­ment’s fore­cast for an­nual growth to two per­cent in 2016-17 rather than 2.5 per­cent as pre­vi­ously pre­dicted, be­fore re­bound­ing to 2.75 per­cent the following year.

West­pac chief econ­o­mist Bill Evans called the re­vised fore­casts “op­ti­mistic”. “We see down­side risks to these fore­casts. Real GDP growth of 2.0 per­cent for 2016-17 looks a stretch and the medi­umterm pro­jec­tions err on the op­ti­mistic side,” he said. — AFP


SYD­NEY: Women sit on a bench in a park over­look­ing the city of Syd­ney yes­ter­day. Aus­tralia avoided a feared down­grade of its cov­eted AAA credit rat­ing on De­cem­ber 19 af­ter stick­ing to its am­bi­tion of re­turn­ing the bud­get to sur­plus in 2020-21 de­spite softer growth fore­casts.

— AP

CAN­BERRA: Aus­tralia’s Trea­surer Scott Mor­ri­son speaks to the me­dia dur­ing a press con­fer­ence at Par­lia­ment House in Can­berra yes­ter­day.

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