Moody’s warns Australia may lose coveted ‘AAA’ status

Ratings agency Moody’s Investor Service said Australia may lose its “AAA” sovereign credit rating should the country’s conservative government give up on deficit repair, raising the stakes ahead of the annual budget in May.

“If we saw the government’s priorities shifting away from a fiscal consolidation, it would be a trigger for a ratings downgrade, but it’s not our baseline assumption,” said Marie Diron, associate managing director at Moody’s yesterday.

Lower wage and profit growth are overshadowing a rally in coal and iron ore prices and the government has failed to get socalled “zombie” savings measures through a hostile senate, threatening attempts to rein in a A$37 billion (RM124 billion) budget deficit.

Diron emphasised that Austra lia’s robust institutional framework and stronger fiscal metrics than many of its similarly rated peers justified a “AAA” rating and the outlook remained stable.

“The rating is not tied to certain thresholds in terms of fiscal debt or deficit measures, it’s more tied to the capacity of the government to support its economy without endangering public finances,” said Diron.

Australia is one of only a dozen countries still rated triple-A by all three major credit agencies, but S&P Global Ratings has repeatedly warned it may downgrade should there be any slippage in the surplus deadline.

“We remain pessimistic about the government’s ability to close existing budget deficits and return a balanced budget by the year ending June 30 2021,” it said in December.