Credit rating agency S&P has downgraded NSW's much-vaunted AAA credit rating to AA+, saying the state's success in suppressing COVID-19 and its proposed privatisation plans will not prevent a large spike in debt.
S&P on Monday said the COVID-19 pandemic would strip billions in forecast revenue from the NSW budget while also forcing the government to undertake large infrastructure and fiscal stimulus programs.
The NSW government's general revenue forecasts over the four years to July 2024 has been written down by $14.8 billion.
S&P said NSW's outlook remained stable but revised the state's long-term credit rating to AA+. It maintained NSW's short-term credit rating at A-1 +.
It comes after fellow credit agency Moody's last week maintained its AAA rating for NSW, despite an erosion in state's financial strength.
"Our ratings on NSW are supported by its wealthy and diversified economy, which is recuperating from a recession in the first half of 2020; excellent financial management; and exceptional liquidity," S&P said in its report.
"NSW was quick to control the spread of coronavirus, averting what could have been a deeper recession. It is well-placed to return to operating surplus and stabilise the balance sheet impact in the medium term."
Treasurer Dominic Perrottet said the recent state budget would help return NSW to a AAA rating.
"Our economic response has been about creating as many jobs as possible, supporting businesses through this time and maintaining record level of investment in infrastructure," Mr Perrottet said in a statement on Monday .
"Our priority is to return people to work and the economy to solid and sustained growth, with a medium-term focus on fiscal repair of the balance sheet."
But NSW shadow treasurer Walt Secord said S&P's rating change was "devastating" and augured poorly for the state's economy.
"The NSW unemployment is still 6.5 per cent and at least 281,700 people are unemployed in NSW," Mr Secord said in a statement on Monday.
Total spending in NSW jumped 6.8 per cent in the September quarter of 2020, having fallen by 8.8 per cent in the pandemic-affected June quarter.
S&P also on Monday downgraded Victoria's credit rating to AA.
