Australia's credit rating

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Australia's credit rating

Posted 28/02/2013 by Paige Darby

Following reports on Wednesday 27 February 2013 that credit rating agency Standard and Poor’s had maintained Australia’s AAA credit rating with a stable outlook, there has been renewed interest in Australia’s historical credit ratings. This FlagPost presents the historical changes to credit ratings in Australia, drawing from public reports and discussions in Hansard.

There are three major ratings agencies that provide scores on a country’s credit rating, thereby measuring sovereign risk. These agencies are Standard and Poor’s (S&P), Moody’s and Fitch Ratings, and they all currently rate Australia at their highest rating (AAA) with a stable outlook.

S&P’s foreign long-term rating for Australia has been AAA since February 2003. Moody’s has rated Australia AAA since October 2002. Fitch was the last to upgrade Australia’s rating to AAA in November 2011.

Historically, Australia’s foreign currency rating by the three agencies has been as follows:
Chart showing Australia's foreign currency rating by Moody's, S&Ps and Fitch. Date of reports dating back from Jan 1962 to November 2011.
Source: media reports and Hansard

Throughout the 1960s and early 1970s, reference to Australia’s credit rating was positive. For example, on 3 May 1960 Treasurer Harold Holt said:
No country outside of North America can go into the New York market and borrow on more favorable terms than can Australia. No country enjoys a higher credit rating around the world at this time than does Australia.
However, it wasn’t until 1975, that the actual rating was mentioned in Parliament.
The information now provided to me by the Leader of the Government in the Senate, on advice from Treasury officials, is that Australia's credit rating in the United States is at an all time high. Both rating agencies rate Australia as a 'triple A' borrower, which is the highest rating obtainable.
According to Prime Minister Whitlam, this was the first time Australia had received an AAA rating from Moody’s, and this rating was later confirmed by Standard and Poor’s:
Last October Moody's, one of the two great New York credit rating agencies, gave Australia, for the first time, an AAA rating, the highest available. On 9 June, at a time when the international financial community was completely aware of our proposal to raise the loans which are the subject of the present controversy,  that AAA rating was confirmed by Standard andPoor's, the other New York credit rating agency.
The AAA rating from both Moody’s and Standard and Poor’s continued until September 1986 when Moody’s downgraded its rating to AA1. The Hon. James Carlton lamented the downgrade at the time:
On Wednesday, 10 September, in New York, Moody's Investor Services Inc., one of the major credit rating organisations in the world, announced that Australia's AAA credit rating, which it had held ever since it entered foreign markets, had been reduced to AA1. This was a very sad day for Australia because the rating given by Moody's and the rating given by the Standard and Poor's Corporation, which will also be reviewed later this year, determine the interest to be paid by Australian governments and government instrumentalities when they are borrowing overseas.
Standard and Poor’s downgraded its rating to AA+ in December 1986. Moody’s further downgraded its rating to AA2 in August 1989. In October 1989, Standard and Poor’s downgraded its rating to AA.

The credit ratings by these two agencies remained at these levels until May 1999 when Standard and Poor’s upgraded Australia’s rating to AA+. Moody’s restored Australia to an AAA rating on 21 October 2002.

In February 2003, Standard and Poor’s also restored Australia to an AAA rating, prompting Treasurer Peter Costello to summarise the various ratings positions:
I can inform the House that over the last 17 years—or really over the last 20 years, I suppose I could say, since the election of the Hawke-Keating government in 1983—there have been four movements in Australia's international credit rating. Australia was first downgraded in 1986, by both Moody's and Standard and Poor's. That was the first downgrading of our credit rating. The second movement of our credit rating came in 1989, under the Hawke-Keating government, when we were downgraded again. The third movement came in 2002 where, after five years of sustained economic effort, Moody's upgraded Australia two places and restored our AAA rating. The fourth movement came during the period that the House was up, when Standard and Poor's, in the fourth movement in 20 years, restored Australia's AAA credit rating on foreign currency bonds and made Australia part of that pack of nations which is in the first row of the world again.
However, it wasn’t until 2011 when Fitch upgraded its rating to AAA that all three agencies were in agreement, and Fitch began to be mentioned in Parliament. For example, Parliamentary Secretary for Defence Mike Kelly was quick to mentionthe historic occasion:
We also see, for the first time in Australian history, the major credit agencies—Fitch, Moody's, S&P—rating us at AAA for the first time in our history.
For comparisons of Australia’s AAA rating with other countries, the Guardian publishes a useful resource covering ratings from April 2010 to January 2013.

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