Independent ratings agency S&P today has issued an update that maintains South Australia’s long-term credit rating of AA+ however with a negative outlook.
Treasurer Rob Lucas said this was an ‘inevitable consequence’ of the COVID-19 pandemic and the Government’s record $4 billion job-creating stimulus spend to turbo-charge the economy and save as many lives, livelihoods and local businesses as possible.
S&P upgraded South Australia’s global credit rating to AA+ (Outlook Stable) following the Marshall Government’s first State Budget in 2018, noting the state’s ‘disciplined approach toward expenditure measures.’
In its published update today, S&P noted the state’s ‘strong financial management’, historically high levels of new business investment, and forecast jobs and economic growth as a result of naval shipbuilding and the Government’s record infrastructure spend.
‘Our ratings on South Australia remain supported by the general strength and wealth of its economy, which has outperformed most of its international peers,’ S&P said.
‘South Australia has, to date, successfully contained the spread of the virus, which has allowed its economy to open faster than its peers, notwithstanding recent COVID-19 cases.
‘Public infrastructure investment, along with a pipeline of mining projects, are likely to provide the state with sustained economic growth over the medium term.’
Reserve Bank Governor, Dr Philip Lowe, has repeatedly urged state governments not to worry about credit ratings during a global pandemic and, instead, focus their attention on stimulus spending to create jobs.
“…I think preserving credit ratings is not particularly important. What’s important is that we use the public balance sheet in a time of crisis to create jobs for people. Creating jobs for people is much more important than preserving credit ratings.” Dr Lowe told a Federal Parliamentary Committee in August.
Treasurer Lucas said: “S&P’s update today is a clear sign that ratings agencies will require state governments to demonstrate a disciplined approach to fiscal management as we emerge from the COVID-19 pandemic.
“Our recent State Budget 2020-21 invests in significant job-creating stimulus – including a record $16.7 billion infrastructure pipeline over four years – with an important forecast return to modest surplus in 2023-24.”
Mr Lucas acknowledged that maintaining the state’s long-term AA+ credit rating was clearly a better outcome for South Australia than a ratings downgrade.
However, S&P warned that it could lower its ratings on SA over the next 24 months if ‘its fiscal metrics do not recover to the degree we forecast.’
‘This could occur if operating deficits persist while the government rolls out large infrastructure spending resulting in wider after-capital account deficits.’