Moody's is set to follow the lead of Standard & Poor's by stripping Victoria of its long-standing AAA credit rating.
The international ratings agency, among the "big three" across the globe, placed Victoria on a review for a downgrade on Thursday, saying its credit profile was no longer consistent with a AAA rating.
Moody's put the sharp outlook change from stable to under review because of debt stemming from the state's economic recession, signalling it would "undermine revenue and raise expenses for several years".
It also pointed to the state's 2020/21 budget, which forecasts debt will soar to $154.8 billion by 2023/4 - about 28.9 per cent of the size of Victoria's gross state product.
"The weakening of Victoria's stand-alone credit profile, from very strong levels, is evidenced in the fiscal 2021 Budget which projects average fiscal deficits," the agency said.
"In turn, the wider deficits reflect a sustained deterioration in the operating balance, partly the result of the large and lingering impact of the coronavirus pandemic, including the second lockdown phase, and bushfires.
"The state has implemented $49 billion of stimulus measures to buffer the economic and social shock, including various payroll tax measures, increased spending on health and transport and the bring forward of public capital spending to support job creation."
It comes three days after S&P downgraded the state's credit rating by two notches from AAA to AA, citing a weaker fiscal outlook.
Victorian Treasurer Tim Pallas has forecast the downgrade to cost the state an extra $10 million each year, describing it as "eminently manageable" given historically low interest rates.
Moody's expects Victoria to be able to finance its higher debt burden at low funding costs, but said it would constrain the state's operating profile in future years.
"The review for downgrade will focus on the effectiveness of the state's fiscal strategy at arresting and eventually reversing the debt shock," it said.
"So far, while Victoria's fiscal 2021 Budget is focused on creating jobs, reducing unemployment and restoring economic growth, it is silent on debt stabilisation and reduction strategies over time, which Moody's assesses would involve turning the budget position to sustained operating surpluses."
