Second global ratings agency warns Victoria is on track for credit downgrade

A second global ratings agency has warned the Allan government that Victoria is on track for a credit downgrade, which could plunge the state further into a financial crisis.

A second global ratings agency has delivered a blunt warning to the Allan government that Victoria is on track for a credit downgrade.

In its latest update this week Moody’s said Victoria’s credit rating could be slashed if the government couldn’t reverse the state’s current debt trajectory.

Such a move would plunge the state further into a financial crisis, further raise borrowing costs and increase debt.

But Moody’s said interest payments were forecast to be too high by 2028 – when net debt is projected to hit $188bn – while spending projections were also concerning.

“Based on its fiscal 2025 budget, the state projects interest payments will reach 9.0 per cent of operating revenue across the non-financial public sector (NFPS) by fiscal 2028 from an estimated 6.0 per cent in fiscal 2024,” it said.

“Downgrade pressure could develop if it became increasingly likely that Victoria will incur a large and persistent increase in its debt burden, with the state evidencing limited capacity to implement countermeasures in the near term to preserve its debt affordability; interest payments in excess of 8.5 per cent of operating revenue on a sustained basis may be inconsistent with a rating at the current level.

“An inability to contain such fiscal pressures would also denote a more marked erosion of governance strength.”

Treasurer Tim Pallas said the government would continue to deliver its fiscal strategy as it created more jobs and grew the economy. Picture: Getty

Despite issuing the stark warning Moody’s confirmed the state’s stable and positive credit rating treasurer Tim Pallas said was “based on our strong and diverse economy that continues to grow.”

“We’ll continue delivering our fiscal strategy as we create more jobs and grow our economy – Deloitte Access Economics predicts that we will lead the nation in economic growth over the next five years.”

Moody’s warning comes less than a month after Stand & Poors also warned Victoria was at risk of a record low credit rating if it pushed ahead with the Suburban Rail Loop without funding from the federal government.

Mr Pallas on Friday said he was confident that funding would come, however federal government sources said there were no plans to contribute any further funds to the project.

Pressed over whether the mega project could be delivered without the federal government, Mr Pallas said he could dip into the state’s consolidated revenue.

“We spent $24 billion out of our consolidated revenue fund to build infrastructure last year alone, so that was for the spend in that year alone,” he said.

“So we have enormous capacity.”

Global ratings giant Standard & Poors believe there’s a ‘real risk’ of the SRL costing more than the latest government forecasts. Picture: Wayne Taylor

But he conceded the huge amount of infrastructure projects in the pipeline had limited Victoria’s choices going forward.

“We want to make sure that everybody gets their fair share of infrastructure, and the Commonwealth have a role to play in that,” he said.

In its update Moody’s blamed the state’s increasing debt burden on major infrastructure spending.

Shadow treasurer, Brad Rowswell, said a further rating downgrade would mean Victorians would pay the price for Labor’s economic mismanagement.

“Following a decade of financial mismanagement under Labor, Victoria’s debt is set to reach a record $187.8 billion by 2027-28, with daily interest to hit almost $26 million – or more than $1 million every hour – over the same period,” he said.

“Premier Jacinta Allan must heed these warnings and reign in Labor’s record debt and record waste on Big Build cost blowouts.

“Victorian’s are expected to live within their means, why should it be any different for the Allan Labor government?”

Originally published as Second global ratings agency warns Victoria is on track for credit downgrade