Coronavirus: Australia’s AAA rating is in doubt as debt soars, agency says

One of the world’s top three ratings agencies has warned that it might cut Australia’s coveted AAA rating.

Just hours before the government realised its budget outlook had ­improved by $60bn on Friday, one of the world’s top three ratings agencies warned that it might cut Australia’s coveted AAA rating.

Ratings agency Fitch cited concerns about Australia’s soaring debt and deficits as the government pushed on with its massive stimulus programs.

“This reflects the significant impact the coronavirus pandemic has had on Australia’s economy and public finances,” Fitch said.

It said gross public debt (federal and state) would rise significantly from 22 per cent in 2011, when Fitch upgraded Australia to AAA.

“Growth will fall sharply in 2020 and government spending in response to the health and economic crisis will cause large fiscal deficits and a sharp increase in government debt/GDP,” it added.

However, the rise in public debt will now be lower than Fitch and other rating agencies have estimated, given the government said on Friday the cost of its JobKeeper wage subsidy scheme would be $70bn, rather than $130bn.

The agency said government containment measures would lead to a 5 per cent fall in GDP this year.

“While these measures have curbed the spread of the virus, they constrained household consumption and reduced business sentiment and investment,” it said.

Fitch’s move means two of the world’s top three ratings agencies have now put the government on “negative outlook”.