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UPDATE 1-Fitch, Moody's affirm Australia's AAA rating, budget gap still a concern
May 12, 2017 / 9:59 AM / 6 months ago

UPDATE 1-Fitch, Moody's affirm Australia's AAA rating, budget gap still a concern

* Policy steps may help lower budget gap sooner than Fitch expects

* Fitch says fiscal f‘casts underpinned by steady economic growth

* Moody not so sure budget will return to surplus by 2020/21 (Recasts, rewrites throughout to include comment from Fitch)

By Swati Pandey and Cecile Lefort

SYDNEY, May 12 (Reuters) - Two top ratings agencies affirmed Australia’s prized triple-A credit rating on Friday, despite concerns about persistently high budget deficits that have eroded the country’s fiscal strength compared with its rich-world peers.

Australia’s conservative government pledged on Tuesday to return to surplus in four years to end more than a decade of deficits that have threatened its top-notch ratings.

Although the government has projected a higher deficit for 2017/18 at A$29.4 billion ($21.7 billion), Fitch expects policy measures announced by the government, if implemented, to help lower the shortfall earlier than it had expected.

“Fitch’s fiscal forecasts are underpinned by steady economic growth,” it said in a statement.

“The broad-based improvement in global demand so far this year, if maintained, would also support exports. The mining investment downturn continues to spill over to weaker private business investment in mining states, but we expect this to recede over the next two years.”

The budget forecast Australia’s A$1.7 trillion economy to grow at 2.75 percent in 2017/18 and strengthen to 3 percent through to 2020/21 - much faster than other advanced economies.

However, Moody’s which also reaffirmed its AAA rating of Australia was not so sure about the budget returning to surplus by 2020/21.

“Moody’s expects that revenues will not rise as fast as the government projects, and that expenditure spending will remain higher than budgeted,” it said in a statement.

“The government projects a rise in revenues as a share of GDP; a trend that has not materialised in the last three years,” the ratings agency said, adding it was expecting steady revenues instead.

Australia is among 10 countries still rated triple-A by all three major agencies, but slower economic growth in recent years and stubborn fiscal deficits have jeopardised its top ranking.

Moody’s and Fitch said the 2017/18 budget had no major impact on the country’s triple-A ratings with stable outlook, while S&P Global Ratings has yet to comment.

S&P put the Australian sovereign on negative watch last July, citing weakened prospects for improvement in budgetary performance.

$1 = 1.3523 Australian dollars Reporting by Cecile Lefort and Swati Pandey; Editing by Jacqueline Wong

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