SYDNEY, July 8 (Xinhua) -- Australia has 12 months to show improvement in the nation's deficit or faces a credit downgrade, ratings agency Standard & Poor's said on Friday.
Briefing journalists via webcast on Friday following the shock decision to place Australia on CreditWatch Negative the previous day, S&P said it would be watching Australia's mid-year budget review in December and May 2017 federal budget before it makes its move.
"We will continue to monitor the government's ability to pass revenue and expenditure measures through both houses of parliament over the next six to twelve months," before downgrading to AA+, Anthony Walker, S&P associate director of sovereign and international public finance, told the webcast.
Australia's key vulnerability is the high external debt with the cost of refinancing up to three times more than it earns in foreign currency. Because of the vulnerability, it is vital for Australia to strengthen its fiscal performance, Walker said.
"We really want to see them start achieving some of their (budget surplus) forecasts," Walker said.
"We've seen over a number of years this has slipped year-after-year, and we're basically saying we would like to see it by 2021.
"It all comes down to they need strong finances to cover their external vulnerabilities for a triple-A rated government."
The banks, however, could avoid a downgrade if they raised between seven and eight billion Australian dollars within two years to avoid a downgrade.
"It is possible that if these banks raise their capital up they could preserve their capital rating," S&P analyst Sharad Jain said, but added that would be "unlikely" simply because they already are heavily capitalised due to local regulations, and further holdings would hinder revenue.
