SYDNEY (Reuters) - Australia's triple A credit rating could be at risk if the government were to sharply ramp up spending as a fiscal jolt for a subdued economy, S&P Global Ratings said on Wednesday,
The agency noted it had upgraded its outlook on Australia to stable from negative in late 2018 based in part on the conservative government's commitment to returning the budget to surplus for the first time in a decade.
The budget is currently projected to be in a small surplus in the year to end 2020.
"Since revising our outlook, the Reserve Bank of Australia (RBA) has further lowered interest rates in an attempt to stimulate waning economic activity," said S&P credit analyst Anthony Walker.
The RBA has cut rates three times since June, taking them to an all-time low of 0.75%.
This easing had also prompted calls for the government of Prime Minister Scott Morrison to increase fiscal stimulus, including infrastructure spending.
"If this fiscal stimulus involves substantial spending initiatives and changes the trajectory of the budget, then doing so could increase downward pressure on our rating and outlook for Australia," said Walker.
While fiscal spending was likely to support the economy, it might also weaken Australia's fiscal flexibility to respond to future unforeseen economic shocks, the agency said.
"We consider strong fiscal outcomes to be important for Australia's 'AAA' rating because of the economy's high level of external liabilities compared with its 'AAA' rated peers."
Australia is one of just 11 sovereigns globally that is rated triple A by S&P.
(Reporting by Wayne Cole; Editing by Kim Coghill)
