Moody's down on Queensland too

Moody's completed its review of the ratings assigned to the State of Queensland, initiated in late February, by lowering the long-term rating to 'Aa1' from 'Aaa'. The outlook is stable. The downgrade reflects the state's deteriorating financial and debt performance and the absence of a medium-term strategy that would, over time, restore budgetary performance and financial flexibility.  

Moody's observed that the state had been forecasting a deficit position (on a cash basis) before the current economic downturn, largely due to rapid growth in current spending and an ambitious $54 billion four-year capital expenditure program. The emergence of the economic downturn has created further budgetary pressures depressing state revenues.

As a result, the state is expected to produce a series of very large, recurring deficits. The widening budget gaps and the resulting additional borrowing that is being projected place the state on a debt trajectory that is no longer consistent with 'Aaa' debt metrics.

Additional budgetary pressures could emerge should economic growth be slower than currently anticipated. Queensland's financial performance is also expected to be challenged by the difficulties in reducing operating spending following a period of accelerated growth. Moody's anticipates the introduction of some measures to dampen the negative budget and debt trends, but the impact of such measures is unlikely to lead to a material shift in the negative trajectories.

As a result of this rating action, Moody's also lowered the long-term rating assigned to JEM (Southbank) Pty Ltd., to 'A3' from 'A2'. The outlook is stable.