S&P Global Ratings has affirmed Western Australia’s credit rating of AAA, estimating the state’s economy to be stable for the next few years.
S&P Global Ratings has affirmed Western Australia’s credit rating of AAA, estimating the state’s economy to be stable for the next few years.
The ratings agency affirmed its long-term issuer credit rating of AAA and an A-1+ short-term issuer credit rating on the state’s budgetary performance.
In its assessment, S&P said the ratings given to WA reflected the state’s track record of sound financial management and high-income economy.
S&P found WA’s financial management to be very strong but estimated the state’s budgetary performance to weaken slightly in the next three years because of increasing capital expenditure commitments by the government.
“The incumbent government has a track record of robust cost control and conservative forward estimates, including in its own iron ore price assumptions,” the assessment reads.
“We have not observed any material shift in fiscal policy following the elevation of Roger Cook to Premier and Rita Saffioti to Treasurer in June 2023, after the sudden resignation of former leader Mark McGowan.”
Ms Saffioti said the state government was proud of WA’s record of strong financial management from the AAA rating given by S&P and Moody's Investors Service.
“Being recognised by S&P Global and Moody’s Investors Service for our financial management and being the only state or territory with a AAA credit rating from both of them further reinforces the strength of our state,” she said.
“This responsible budgeting means we’ve been able to support Western Australian households with cost-of-living support, invest record amounts in health, housing and homelessness, and build critical infrastructure to help grow the economy, support jobs and set our state up for generations to come.”
S&P estimated WA to continue posting healthy operating surpluses and averaging 9.7 per cent operating revenues over fiscal years 2023-27.
"The state derives a significant portion of its revenues from mining royalties," S&P said.
"In fiscal 2024, we estimate royalty income was approximately $11.2 billion, up slightly from about $11 billion in fiscal 2023. This is due largely to continued strong Chinese demand for iron ore, a key steelmaking ingredient.
"We expect the state to post modest after capital account deficits, averaging 2.5 per cent of total revenue, over fiscal years 2025-2027. This follows the state government's substantial new outlays for its capital expenditure program."
However, S&P said the state’s exposure to the resources sector could lead to a volatile economic performance.
“Changes in resource and energy commodity prices, demand, and policy can affect growth,” the ratings agency said.
“This was particularly apparent in fiscal 2017, when the state economy contracted 1 per cent following several years of a declining rate of growth.
“We assume the average spot price of iron ore will be higher than the state's budget assumptions over the next few years.”
S&P estimated the spot price of iron ore to decline by $US90 per tonne by 2026.
“More than two-thirds of Western Australia's mining-related revenues come from iron ore royalties; the remainder is from other minerals such as lithium and gold,” the agency said.
“Potential volatility in commodity prices and demand remains a moderate risk, both upside and downside, to our financial and economic forecasts.”
WA regained its AAA credit rating in mid-2022, after S&P Global lifted the figure for the first time in nine years.
