Queensland’s Credit Rating Drops to Negative
By Esther Tanquintic-Misa | November 26, 2012 2:35 PM EST
The Australian state of Queensland's AA1 credit rating has been downgraded from stable to negative by international ratings agency Moody's Investors Service, and is unlikely to revert any time soon to its former AAA rating.
Moody's explained that the change to Aa1 with a negative outlook from Aa1 with a stable outlook results from the results from the state's continued falling and worsening fiscal performance as well as high levels of debt.
Although the international ratings agency saw and believed Queensland and its state government continue to scout for ways to regain its lost stature, "these will only take hold in a few years, and progress could be slowed by the potential emergence of less supportive conditions," the agency said.
It was in 2009 when Queensland was stripped of its AAA rating, at the time that the global financial crisis was at its peak. It had failed to recoup, settling for an AA1 rating since then.
Specifically, the mining slowdown plus the great flooding of 2011 has terribly affected coal-rich Queensland.
"Queensland's financial performance deteriorated over the past five years as the state faced mounting cost pressures related to the social service and infrastructure needs of a rapidly growing and urbanizing population in the south, as well as infrastructure demands in support of resource industries in the north," the agency said.
Although it has seen the state's new budget plan, Moody's believes the proposal could face several contentions.
"The state government has implemented a new fiscal redress plan that aims to restore budgetary balance by 2014/15, largely through constraining growth in expenditures to 2.5 per cent on average over the next four years compared to the 8.7 per cent registered over the past four years," Moody's said.
"This more prudent fiscal approach is a positive development, but actual improvements would take a few years and will be challenged by upward pressures on expenditures related to rapid population growth."
''Returning to AAA at this point is unlikely in the near term given the high levels of debt,'' Moody's senior credit officer Debra Roane said.
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