The WATC has had its long-term issuer and senior unsecured debt ratings downgraded by Moody’s to Aa2 from Aa1.
“The ratings downgrade reflects the ongoing deterioration in Western Australia's financial and debt metrics, and an increasing risk that the state's debt burden will be higher than indicated in its FY2015-16 mid-year report,” a statement issued by Moody’s said.
The statement indicated that the downgrade, which was backed by the state of WA, was driven by a significant widening in deficits exacerbated by the impact of falling iron ore and oil prices on the state’s budget outcomes.
“Furthermore, Moody's believes that, unless the government strengthens its commitment to budget improvements, there is a risk that deficits forecast in the mid-year report will be exceeded," the statement said.
“The larger deficits will drive further increases in the state's debt burden – already at a high 102.3 per cent of revenues in FY2014-15, up from a moderate 44.4 per cent in FY2007-08 – to a projected 128.9 per cent in FY2015-16."
The outlook for the ratings have been changed from negative to stable, due to the support provided to WA via Australia’s institutional framework.
“Principally, GST-backed Commonwealth grants – distributed in accordance with an equalization formula – will help to cushion a weakening in Western Australia's relative economic performance in relation to the other states,” the statement continued.
Moody’s said the state is also planning a number of asset sales that could ease the expected accumulation in debt.
The downgrade follows concerns about Australia's credit rating, with BlackRock noting that while concern is warranted there is no immediate danger of a downgrade.
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