Mixed news on credit ratings: NSW’s is OK at Triple A, for the moment anyway, but Ireland’s rating has been cut for the second time in four months as its financial position continues to worsen.
But despite an expected $2 billion plus deficit forecast for the 2010 budget, NSW will keep its coveted, top-rank AAA credit rating, but risks losing it if key infrastructure projects are delayed, Fitch Ratings said yesterday.
The ratings group reaffirmed the long-term foreign currency rating for NSW at ‘AA+’, its short-term foreign currency rating at ‘F1+’ and its long-term local currency rating at ‘AAA’.
It also declared that the outlook for NSW "remains stable".
"The current economic downturn is having a dramatic effect on the state’s revenue collections and appears to be deeper and longer lasting than state officials expected," the ratings agency said in a statement.
"The credit outlook of the state of NSW is stable although another postponement of the state’s infrastructure investment program, as occurred earlier this decade, would pose a long-term credit concern.
"Deferment would add to project costs and potentially reduce the state’s economic attractiveness as well as its prospects for continued economic and tax base growth."
NSW Treasurer Eric Roozendal said last week the budget, due to be handed down on June 16, was being drawn up with the retention of the state’s AAA credit rating in mind.
The state budget has a projected deficit of $2.5 billion.
In February, ratings agency Standard and Poor’s downgraded Queensland’s credit rating to AA+ after that state government revealed its budget had slipped into a $1.573 billion deficit.
The Queensland Premier, Anna Bligh has revealed plans to privatise up to $16 billion of assets and businesses, as well as ending the huge petrol subsidy that was draining half a billion dollars a year from the budget to car vehicle owners and drivers.
Those moves were prompted by the size of the deficit and the ratings downgrade.
But in Ireland, a very different outcome: its credit rating has been cut for the second time since March and its still on a negative outlook, meaning another downgrade is very possible.
It’s an example of what happens to a small economy when things go really wrong, aided and abetted by poor regulation (of the banks) and the greed and corruption of some business people, mostly Dublin based property players.
But senior bank executives and directors in at least one bank have been implicated in a huge scandal that is costing the country billions of euros and contributed to the downgrades.
So poorly is Ireland currently placed that the ratings group, Standard & Poor’s, says it will be at least five years (2014) before Ireland’s economy recovers to where it was in 2008.
Ireland is the first European economy to be downgraded twice in this crisis. Spain, Latvia, Portugal and Greece have suffered ratings cuts, as has broke Iceland, which remains in a class of its own.
Britain has been warned with its AAA rating on a negative outlook, but ratings groups won’t look again at Britain’s rating until after the next election, due in about nine months time.
Standard & Poor’s cut its rating for Irish long-term debt to its lowest level in 14 years, blaming massive losses at Anglo Irish Bank (11.5 billion euros and counting), and the likely cost of rescuing the country’s other banks.
The move unsettled the euro on Monday, forcing it lower against the US dollar.
The rating of ‘AA’ with a negative outlook suggests the country has a higher risk of defaulting than any other member of the eurozone, bar Greece and Slovenia.
The ratings agency said the Irish economy won’t return to last year’s levels of growth for another five years at least, and rescuing the two big banks could cost 25 billion euros, or 10 billion more than the firm originally forecast.
National debt could balloon to 120% of gross domestic product from 41% in 2008.
S&P said it believed the cost to the government of propping up the banking sector was now “significantly higher”.
S&P analyst David Beers said the proposed National Asset Management Agency (Nama, which will run a sort of bad bank to handle toxic and dud loans) was “uncertain” to work because of the risk that the bank assets would deteriorate in value by more than the government expects at the time that they purchase the assets.
Losses announced at Anglo Irish Bank also “highlight both the continued fragility of the Irish banking sector and its reliance on the government for ongoing financial support”, according to the ratings group.
S&P’s Mr Beers said a further downgrade was not “inevitable”, but that a negative outlook meant there was a one in three chance the Republic’s credit rating would be taken down a further notch.
The rating agency expects the government to spend between 55 billion and 75 billion euros to buy land from developers as part of its plans to rescue the banks from insolvency.
Nobody knows the exact amount yet because the government has still not said what it will pay for the land. The money will be raised through a series of bond issues.
The Fitch agency cut Ireland’s “AAA” rating to “AA+” in April. Moody’s has retained its “AAA” rating to date, but has placed it on a negative outlook.
Last week, the government said it would inject a further 4 billion euros into Anglo Irish Bank, in addition to the 7 billion already injected into AIB and Bank of Ireland. Anglo Irish is likely to need a further 3.5 billion if the quality of its underperformi
