Quarterly MonitorMoody’s Aaa Sovereign Monitor
Aaa government: Ireland. The lack of rating actions on other Aaa countries indicates that, while most of thesecountries have “lost altitude” within the Aaa space, they retain the characteristics necessary for a Aaa rating.These characteristics include, among others, a high degree of “debt financeability,” “debt affordability,” and“debt reversibility”. Moody’s approach to measuring debt financeability – i.e. the ability to raise debt without itsubstantially affecting the cost of the debt – is the subject of a special section (page 21).Debt affordability – which is best represented by the ratio of interest payments to government revenue – is oneof the biggest uncertainties going forward. In the graphs on individual Aaa countries shown over the followingpages, we have illustrated a range of possible outcomes for this ratio. Under some scenarios, this ratio couldreach problematic levels in the next few years in some countries. However, under the baseline scenario, westill believe that the trajectory of the debt metrics, while unfavourable in the near term, does not currentlythreaten the ratings.The countries covered in this issue include the largest four Aaas – France, Germany, the United Kingdom andthe United States – which will feature in every issue of this quarterly publication. In addition, we have shortersections on four other Aaa countries: Austria, Luxembourg, Switzerland and New Zealand.Overall, the European countries are characterized by potential contingent liabilities from their banking systems.Indeed, Luxembourg and Switzerland have very large banking systems in relation to their economic size.Moreover, the exposure of Austrian banks to Eastern Europe caused some concern at the height of the crisisand may not have fully materialized yet. In the southern hemisphere, meanwhile, New Zealand’s banks aremainly owned by strong foreign banks, but the size of the country’s (and the banks’) external liabilities havealso raised questions, now considerably alleviated, about the government’s contingent liability. It is worthnoting that Moody’s maintains negative outlooks on the banking systems of Austria, Luxembourg, and NewZealand, reflecting uncertainty over possible losses and, therefore, the size of the contingent liability. This isalso the case with many other countries globally, although Switzerland’s system still has a stable outlook.
What To Find in This Report
This quarterly report sheds light on and puts into practice the conceptual framework Moody’s uses in analyzingdebt metrics in order to identify rating pressures on Aaa-rated governments. The report also contains anumber of updated data and analytical tools to dimension debt trends under different scenarios.
presents our analytical framework and identifies the Aaa-Aa demarcation zone.
briefly recapitulates our three scenarios, which differ in their assumptions in terms of economic andfinancial recovery.
recapitulates a way of categorizing Aaa countries as Resistant, Resilient, or Vulnerable
focuses on the four largest Aaa countries (Germany, France, the UK and the US)
briefly introduces recent and forthcoming developments in four other Aaa-rated sovereigns (Austria,Luxembourg, New Zealand and Switzerland).
(Special Focus) describes how we understand and measure the concept of debt financeability.
presents our debt projections in greater detail for the countries that are the focus of this secondissue of the Aaa Sovereign Monitor.