Washington - Australia avoided a feared downgrade of its coveted AAA
credit rating Monday after sticking to its ambition of returning the budget to
surplus in 2020-21 despite softer growth forecasts.
The country's resources-driven economy has enjoyed more than
20 years of growth but it is now transitioning out of an unprecedented mining
investment boom, and the going has been bumpy with revenues under pressure.
In a mid-year fiscal update, the government revised down the
nation's cash deficit of A$37.1 billion ($27 billion) in 2016-17 - as
announced in the May budget - to A$36.5 million.
But it forecast widening deficits in the next three years
before a return to surplus.
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"The government's plan to restore the budget to balance
remains on track," Treasurer Scott Morrison said in a statement.
Higher iron ore and coal prices would help support tax
revenues, the update said, but this would be more than offset by weaker wages
and non-mining company profits.
After knife-edge elections last year, Standard and Poor's
warned Australia's rating could be lowered if Canberra did not improve its
budget balances and deliver on surplus plans.
It said Monday the update had no immediate effect on its
stance but warned the "government's worsening forecast fiscal position...
further pressures the rating".
S&P said it would continue to monitor the situation and
was "pessimistic about the government's ability to close existing budget
deficits and return to surplus by the year ending June 30, 2021".
Australia is one of only a handful of countries to hold the
top AAA rating from all three major agencies, having dodged a recession during
the global financial crisis.
Moody's and Fitch also kept their ratings on hold, for now.
Generally, losing the AAA means the nation would be forced to pay higher
interest on its debt.
Capital Economics' chief Australia economist Paul Dales said
"it probably won’t be long before one or two of the ratings agencies
withdraw their AAA rating".
"The treasurer has admitted that in the four financial
years starting 2016-17 the budget deficit will be around $10 billion higher
than forecast in May’s budget," he said.
"The chances of the budget being balanced by 2020-21,
which the rating agencies want, has become even less likely."
The conservative government does not have a majority in the
upper house Senate, meaning it has struggled to pass some spending cuts.
This has stymied efforts to rein in debt and deficits,
undermining business and consumer confidence with repercussions for the
economy, which contracted 0.5 percent in the September quarter.
Given the poor quarterly number, the update changed the
government's forecast for annual growth to two percent in 2016-17 rather than
2.5 percent as previously predicted, before rebounding to 2.75 percent the
following year.
Westpac chief economist Bill Evans called the revised
forecasts "optimistic".
"We see downside risks to these forecasts. Real GDP
growth of 2.0 percent for 2016-17 looks a stretch and the medium-term
projections err on the optimistic side," he said.