The revolving door of prime ministers is going to drag down Australia’s credit rating

Tony Abbott and Malcolm Turnbull in Parliament. Stefan Postles/Getty Images

Ratings agencies can’t see a major impact from the latest change in prime minister in Australia, but there will be a downside if the revolving door of national leadership doesn’t stop soon.

Fitch ratings says the high turnover of prime ministers, with five changes in eight years, has had little impact on economic policies, investor confidence or the nation’s credit profile.

“The driving forces have been more to do with personalities than economic policy,” says Fitch.

“However, Australia faces its share of longer-term issues including population ageing, fostering productivity growth outside mining, and infrastructure provision.

“Continued churn at the top could inhibit the development of a strategic policy response, although this is not yet an issue for the ratings.”

Moody’s Investors Service says Australia has very high institutional strength, as reflected in its scores in global measures such as the World Bank Governance Indicators.

“Leadership challenges which occur within this strong institutional framework reflect Australia’s democratic process,” says Atsi Sheth, associate managing director at Moody’s.

“In and of themselves, they do not pose sovereign credit risks. Past leadership challenges in Australia have not led to shifts in the economic or fiscal policy framework, which is what is important from the sovereign credit perspective.”

However, the most recent leadership challenge comes at a time when economic and fiscal challenges are rising.

The strong growth supported by commodity related investment and exports has come to an end.

“While leadership challenges are part of the process of democracy, if political uncertainty leads to economic policy uncertainty or dampens business sentiment, it would add to the challenges facing the Australian economy,” says Sheth.