S&P downgrades ratings of Australia's two top states

SYDNEY: S&P on Monday downgraded credit ratings for Australia's two economic powerhouses of New South Wales and Victoria as the coronavirus pandemic dealt a severe economic and fiscal shock on the two states. S&P lowered its ratings on New South Wales state, of which Sydney is the capital, to 'AA+' from the highest 'AAA' and affirmed its A-1+ short-term rating, adding the long-term outlook was "stable."

"The downgrade primarily reflects our expectation that NSW's debt burden will rise substantially during the next three years," S&P said in a statement. "We expect NSW to post a historically large after-capital-account deficit this fiscal year, though the deficit should narrow in future years."

Victoria, which emerged from a lengthy lockdown only last month, was downgraded two notches to AA.


Australia's A$2 trillion ($1.49 trillion) economy slipped into its first recession in three decades in June, prompting the government to unleash massive fiscal stimulus to help lift unemployment and inflation. Federal government debt is seen surpassing A$1 trillion next financial year-ending June 2022. The COVID-19 recession and its lingering after-effects has had a severe effect on state budgets.

"In our view, the Victorian government's path to fiscal repair will be more challenging and prolonged than other states," S&P said, citing a jump in debt projected over coming years and the state's limited flexibility to repair its balance sheet through asset sales.