Victoria lost her AAA credit rating after global rating firm S&P said the state was facing a “major economic and fiscal shock related to the pandemic.”
S&P Global Ratings today downgraded its long-term credit rating from AAA to AA status, saying that despite the drop, the rating outlook is stable.
Analysts noted that Victoria’s deficit is high “based on national and international comparisons.”
“Victoria is responding to a major economic and fiscal shock related to the pandemic with significant fiscal stimulus initiatives beyond what we previously included in our rating,” S&P Global Ratings said in a report.
“The state’s operating and post-capital account deficits and debt burden have deteriorated dramatically, with debt reaching about 200% of operating income in 2023 from 70% last year.
“They are likely to remain high in national and international comparison.”
The firm noted that Victoria remains “structurally rich” but will take longer to recover than in other nation states.
“Victoria’s economy has been affected more significantly than other Australian states and territories, mainly because the consequences of the second wave of infections resulted in a substantial and prolonged lockdown,” the report said.
“In our opinion, the Victorian government’s path to fiscal redress will be more challenging and protracted than in other states due to the significant increase in the projected debt stock over the next several years and the more limited flexibility of the state to repair its balance through of asset sales certain degree of uncertainty about the government’s political position with respect to expense management. “
One of the main drivers of the state’s credit rating was its ability to grow its population, which S&P says is now declining.
“The second lockdown significantly reduced activity in all sectors of Victoria’s economy,” S&P analysts wrote in the report.
Furthermore, Australia’s international borders remain closed, damaging the education and tourism industries.
“It will also result in a drastic reduction in the state’s population growth, which has been a key factor behind the recent economic success of the state.
“It is not clear, in our opinion, whether this source of growth will recover to previous levels.”