Bangkok--12 May--Standard & Poor's
Standard & Poor's Ratings Services said that its views on the Commonwealth of Australia's (AAA/Stable/A-1+) sovereign creditworthiness are unchanged following tonight's federal budget. The 'AAA' long-term and 'A-1+' short-term sovereign ratings on Australia reflect our opinion of the country's strong public finances, as well as its sound financial sector, resilient economy, and open and transparent policy environment. These strengths offset Australia's high level of private sector external indebtedness at a time of continuing elevated stresses in the global financial system. The 'AAA' rating is the highest rating assigned by Standard & Poor's.
The federal government is forecasting a fiscal deficit on a cash basis to be 4.4% of GDP in the year ending June 30, 2010. The budget provides for lower deficits of 2.9% in fiscal 2011 and 0.9% in fiscal 2012, after allowing for additional spending on health care, the third and final round of promised cuts to personal income tax, and the introduction of additional taxes on mining sector profits. The government is now forecasting a return to modest fiscal surpluses in 2013—three years earlier than it predicted in the 2009 budget—reflecting an improved outlook for economic growth and associated revenues, the new taxes, and an unwinding in fiscal stimulus measures. Gross general government debt is now expected to peak at about 15% of GDP in 2011.
"The deficits and additional borrowings do not alter the sound profile of Australia's public finances, which remain among the strongest of its peer group," Standard & Poor's credit analyst Kyran Curry said. "Leading into the global recession, the government's balance sheet provided flexibility to absorb higher debt levels and cyclical deficits of this nature. Restoring public finances through a return to surpluses over the cycle and maintaining low debt will shore up the government's ability to run additional countercyclical fiscal policy if required. This is consistent with maintaining the 'AAA' rating on Australia."
Mr. Curry added: "The most identifiable risk to the ratings on Australia would be a significant weakening in the credit quality of the country's bank sector given its role in funding Australia's significant current account deficits. Although Australia's banks are heavily reliant on external funding, we believe that the bank sector's credit quality will remain sound by international standards. If the bank sector's credit quality deteriorates, downward pressure could intensify on the ratings on Australian banks and, in turn, the ratings on Australia."
RELATED CRITERIA AND RESEARCH
Report Card: Asia-Pacific Sovereign Report Card: 2010 Will Be Testing For Policymakers, published to RatingsDirect on Feb. 2, 2010
Commonwealth of Australia Full Analysis, published to RatingsDirect on April 14, 2009
Sovereign Credit Ratings: A Primer, published to RatingsDirect on May 29, 2008
Standard & Poor's (Australia) Pty. Ltd. holds Australian financial services licence number 337565 under the Corporations Act 2001. Standard & Poor's credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).
Media Contact:
David Wargin, New York (1) 212.438.1579,
[email protected]
Analyst Contacts:
Kyran Curry, Melbourne (61) 3-9631-2082
Brendan Flynn, Melbourne (61) 3-9631-2042
Key Contacts:
Americas Media Relations: (1) 212-438-6667
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