Australian Capital Territory AAA Rtg Affirmed By S&P.

Business Editors

MELBOURNE--(BUSINESS WIRE)--Jan. 22, 2003

Standard & Poor's Ratings Services said today it has affirmed the 'AAA/A-1+' local currency credit ratings on the Australian Capital Territory (ACT). Also affirmed are the ACT's 'AA+/A-1+' foreign currency ratings. The ratings outlook is stable. The foreign currency ratings reflect the sovereign credit risks associated with the 'AA+' foreign currency rating on the Commonwealth of Australia. The 'AAA' rating is the highest rating assigned by Standard & Poor's. "The catastrophic fires in the ACT will make achievement of the government's fiscal objective of an accrual operating surplus on average more difficult over the economic cycle," said Brendan Flynn, associate director, Public Finance Ratings.

In its first budget last year, the Stanhope government introduced policy measures that will lead to accrual operating deficits in the next few years. Operating surpluses are forecast in later years to achieve the government's fiscal target.

"We usually see 'AAA' rated governments recording surpluses in the good times as insurance against the bad times," noted Mr. Flynn. "The ACT's projected operating deficits, with a promise to get better later, leaves the government little flexibility for further policy announcements in the electoral cycle. It also leaves the government exposed to unexpected shocks, such as the fires or an economic slowdown." However, although too early to gauge their cost, the fires are likely to have manageable impacts on ACT finances. Contributions from the Commonwealth and prudent insurance arrangements will alleviate much of the impact on territory finances from the loss of infrastructure assets, although the ACT government will need to bear some costs itself, and it is likely to face some pressure for further spending on emergency services. Most importantly, the ACT's balance sheet is one of the strongest in Australia. After certain technical adjustments have been made, the territory's net financial liabilities (which is net debt plus unfunded superannuation) burden is budgeted to equate to only about 35% of revenue in 2003. "Some of this strength will certainly be whittled away due to the fiscal easing, the impact of the fires, and the likely impact of weak financial markets on the value of the ACT's investment portfolio," said Mr. Flynn. "However, the 'AAA' rating is not under threat for now. We expect that the government will maintain fiscal discipline in the face of these challenges. Furthermore, the territory's balance sheet is so strong that it could absorb a shock of several hundred million dollars before net financial liabilities become a cause for concern."

Copyright 2003, Standard & Poor's Ratings Services