Following Australia’s federal election in July this year, credit ratings agency Standard and Poor’s (S&P) placed Australia’s prized AAA rating on watch negative, implying a one-in-three chance that it could be lowered within two years.
It was perceived to be a warning for Australia’s policymakers, a proverbial shot across the bows to get the nation’s fiscal house in order or suffer the reputative and financial consequences.
Now, just five months on, Stephen Miller, head of Australian fixed income at Blackrock, the world’s largest money manager, believes Australia’s AAA rating could be stripped within weeks following the release of the government’s mid-year economic and fiscal outlook (MYEFO), something that has traditionally been delivered in mid-December.
“Australian governments have been serial under-deliverers,” said Miller in an interview with Bloomberg. “If we persist with that, we might see the patience of the rating agencies tested to breaking point.
“There have been some positive developments in the last six months, but I think they’ve been few and far between.”
Miller believes that a downgrade could be forthcoming if the government’s interim budget review shows further deterioration in its fiscal position.
He also said that while higher coal and iron ore prices — Australia’s two largest goods exports by dollar value — held out the prospect of increased government revenue, he doubted that it would be sufficient, or that it would come soon enough.
In regards to Australia’s AAA credit score, Miller told Bloomberg that Australia is “sailing very close to the wind”.
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