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Victoria credit rating placed on watch by S&P Global ratings

S&P Global Ratings has threatened to downgrade Victoria’s top-notch credit rating after the state declared a “state of disaster”.

Victorian Premier Daniel Andrews (right) and Treasurer Tim Pallas speaking to the media during a press conference in March.
Victorian Premier Daniel Andrews (right) and Treasurer Tim Pallas speaking to the media during a press conference in March.

S&P Global Ratings has threatened to downgrade Victoria’s top-ranked credit rating after the state declared a “state of disaster” and additional lockdowns which will “severely hit economic activity.”

The international ratings agency put Victoria’s “AAA” long-term credit rating on “CreditWatch with negative implications” on Thursday. It expected to make a decision about the rating within the next few months, when there was greater clarity about the fiscal effect of the latest lockdown, the government’s policy direction, and the government’s ability to control the latest outbreak.

“There is an increasing possibility that we will lower our long-term rating on Victoria within the next few months if the situation deteriorates, such as the state being unable to control the latest outbreak or if the state’s fiscal recovery is likely to be delayed beyond our expectations,” S&P said.

The revelation came after record daily numbers of coronavirus cases in Victoria last week prompted premier Daniel Andrews to apply “stage four” restrictions on about 5 million people living in Melbourne, while also severely limiting business activity in the capital.

“We expect to lower our long-term rating on Victoria if we consider its fiscal repair would be delayed beyond our base-case expectations,” S&P said in a statement.

“This could occur if the COVID-19-related economic contraction is more prolonged or severe than we currently expect. This may also come if our view is that the state’s financial management is weakening. We would lower our rating if we were to take a similar action on Australia.”

S&P also said it would remove the ratings from CreditWatch negative if it were to gain confidence that an economic recovery and the state’s financial management capability will support Victoria’s fiscal metrics to recover, in particular through delivering operating surpluses and reducing its debt burden relative to operating revenues within the next two years.

S&P meanwhile affirmed its ‘A-1+’ short-term rating on Victoria

David Rogers
David RogersMarkets Editor

David Rogers began writing about financial markets in 1987. He has worked for Standard & Poor's, Thomson Financial, BridgeNews, Tolhurst Noall, Dow Jones Newswires and The Wall Street Journal. David has extensive real-time reporting experience in economics, foreign exchange, equities, commodities and bonds.

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Original URL: https://www.theaustralian.com.au/business/markets/victoria-credit-rating-placed-on-watch-by-sp-global-ratings/news-story/321ef1e6a7e744c3765c8fbd2effebc2