Treasury officials generally put on a good morning or afternoon tea when staff from rating agencies such as Fitch, Moody’s and Standard and Poor’s come for their regular consultations on fiscal policy. If I were a Queensland Treasury official, I’d save the good cream biscuits and put out some milk arrowroots next time Fitch comes calling. There is absolutely no justification for the latest rating downgrade reported this evening (Queensland credit rating downgraded). Fitch appears oblivious to a number of obvious facts:
- there is practically zero chance of the Queensland Government defaulting on its debts;
- the Government is set to earn billions of dollars in LNG royalties when exports begin in a couple of years; and
- the economy is in reasonably good shape, although there are patches of weakness in housing construction and the Gold Coast and Far North are taking a while to recover.
Sure, there are risks to Queensland’s economic outlook from the slowdown in China and the Euro-zone, but Fitch should wait for those risks to materialise, rather than looking into its crystal ball and downgrading our credit rating. This is a really daft call by Fitch. Hopefully the bond market agrees and doesn’t raise our borrowing costs.
My previous posts on Fitch and other rating agencies include: