Coronvirus Australia: Queensland put on notice for a credit squeeze as the coronavirus crisis bites

The embattled Queensland government has been put on ­notice that its credit rating could be downgraded if debt increases.

Jackie Trad’s scheduled delivery of this year’s budget on Tuesday has been indefinitely delayed. Picture: Steve Pohlner

The embattled Queensland Labor government has been put on ­notice that its credit rating could be downgraded if debt continues to climb more than expected in the face of collapsing revenues as a ­result of the coronavirus crisis.

In its latest credit update, ­ratings agency Moody’s said Queensland’s books were in a strong-enough position to weather the impact of the pandemic over the medium term, with its diverse economy and access to more than $17bn in liquidity through its ­investment arm.

However, Moody’s warned the state’s Aa1 credit rating could be slashed if its current debt — which was already set to climb to $91.8bn by 2023-24 before the coronavirus struck — were to rise further, as the ­government grapples with falling revenues and the need to stimulate the economy.

The agency said the rating “could experience downward pressure”, with higher-than-projected debt from either “a further significant widening in fiscal deficit­s due to continued revenue weakness without a commensurate policy response”, or a “loosening of fiscal resolve through higher levels of spending growth”.

Treasurer Jackie Trad has already­ promised a $4bn COVID-19 stimulus package that ­includes a $400m land-tax relief package for property owners, $500m in workers’ ­assistance measures and $300m for discounted household utility bills.

Ms Trad’s scheduled delivery of this year’s budget on Tuesday has been indefinitely delayed, and on Wednesday the Treasurer established a $3.2bn line of credit within the Appropriation (COVID-19) Bill 2020 to enable the government to draw on emergency funds to pay for the stimulus.

In its report, Moody’s said the state’s credit rating was stable, even though Queensland was alread­y facing a slight downturn, with gross state product growth ­revised down from 3 per cent to 2.5 per cent for the current financial year, before the pandemic hit.

“The credit profile … reflects Queensland’s diverse economy and healthy financial margins, as well as the secure and predictable grants from the government of Australia (Aaa stable),’’ the Moody’s report says.

“The state’s debt burden is ­rising due to rising revenue and expenditure pressures, as well as increases in capital spending.

“The impact of the coronavirus will exacerbate these pressures. However, our view is that while this will cause deterioration in the state’s financial metrics, it will not damage them permanently. While leverage remains elevated compared to its domestic peers, Queensland retains ample levels of internal liquidity and a fully funded superannuation liability.”

Moody’s said the state’s exports were stable, but were vulnerable. “Export volumes remain vulnerable to a sustained deterioration in economic activity,” it said.