Australian states credit quality low
Global rating agency Moody’s says that the credit quality of the six Australian states and one territory rated by Moody’s remains under pressure with large budget deficits anticipated for the year ending June 30, 2013.
At the same time, almost all of the jurisdictions have plans to narrow their budget gaps and forecast significant improvements in their financial performances over the medium term because they have the financial flexibility to adjust expenditure, if required. The Moody’s report further says that while these jurisdictions may not meet their budget targets for FY2012-2013, to the extent that their resolve remains solid and they implement offsetting measures that allow a return to balance, then ratings quality will likely be maintained. Conversely, if fiscal policy responses to counter ongoing budget deficits are insufficient and if the jurisdictions are unable to reverse the deterioration in their financial performance, then Moody’s would likely consider adjusting their ratings. However, while some rating adjustments may occur, Moody’s does not anticipate multinotch adjustments as the current Aa-Aaa range reflects a favorable operating environment, including solid economic growth, significant budget flexibility and strong financial support from the Commonwealth (Aaa stable).
In response to recent years’ deterioration, all states have implemented expenditure control measures to bring spending in line with revenues, leading to expectations.