Change of government irrelevant to credit rating

Date July 1, 2013

Clancy Yeates

Australia's top-notch credit rating has been re-affirmed by Moody's, and it says a change of government is unlikely to change this view. In its annual review of the government's rating today, Moody's maintained its AAA rating with a "stable" outlook, saying the economy's financial position was stronger than the outlook in most countries overseas. "Economic resiliency is demonstrated by the country's large size, economic diversity, and track record of solid economic growth," it said this morning. Despite mining investment having peaked, it argued that the recent weakening in the dollar should help non-mining sectors pick up some of the slack, with growth expected to remain "moderate."
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Moodys said the Australian dollars decline was credit positive for Australian miners and the oil and gas sector, where if sustained, it would help preserve margin and cash flow in the weak and volatile commodity price environment. Conversely, the decline is credit negative for retailers because it will raise the price of imports, and for Australian real estate investment trusts (A-REITs) exposed to retailers, which will likely press for new or renewed leases at lower levels than their expiring leases, the report says. Moodys acknowledged that the currencys fall was due to a rally in the US dollar after Federal Reserve chairman Ben Bernanke said the US central bank could soon start to scale back its economic stimulus program. Australia has avoided a recession in recent years despite the global financial crisis (GFC) hitting its major trading partners hard. One of reasons for the continued economic growth is the mining and resources boom, driven by exports to China. It noted the series of budget deficits, which have caused gross debt as a proportion of the economy to swell from 6 per cent in 2007-08 to 19.6 per cent today. But it also said Australian governments had a good track record for running balanced budgets over the economic cycle - a comment that applied to Labor and the Coalition. "A change in government in the upcoming elections would be unlikely to alter the overall fiscal stance, given the strong framework that is in place and the record of the Liberal/National coalition when it formed the government previously," it said. The ratings agency said the federal governments strong financial position enabled it to give the economy some help during the GFC. Moodys assesses the governments financial strength as very high. Among the advanced economies, Australia has one of the lowest general government debt levels, although its debt has risen in the past several years, Moodys said.