On Friday 16 December 2016, the DBRS financial rating agency carried out an analysis of the outlook for the Luxembourg economy for the first time and awarded the AAA rating to the Grand Duchy with a stable outlook.
This award is in line with the confirmation of the best credit rating from the three major agencies – S&P, Fitch and Moody’s. However, DBRS’s rating is entirely new and does not simply constitute confirmation of an existing rating.
In its analysis, DBRS points out that Luxembourg’s public debt is among the lowest in the European Union and considers that this situation will be maintained in the years to come. Including in its calculations the implications of the tax reform, the agency estimates that the public finances will remain in surplus and that the level of public debt will in any case remain below 25% of GDP over the next 5 years. DBRS further believes that, even under the assumption of a severe shock, the level of debt would remain largely controllable and well below the criteria of the Stability and Growth Pact.
The agency also underlines the soundness of the institutions, the good governance of the Luxembourg economy, the quality of supervision of the financial sector, and the attractiveness of the country for foreign investors. As a result, it expects for the years to come a growth which continues to be above 3.5% per year and therefore well above the average of the countries of the European Union and the euro area.
Among the risks, DBRS cites the long-term financing of the pension system, as well as the possible implications of changes in taxation at the international level.
Pierre Gramegna, Luxembourg’s Minister of Finance commented “I am delighted that a fourth ranking rating agency has henceforth devoted itself to analysing our economy and arriving at the same rating as all other agencies, namely ‘AAA’ with a stable outlook. The analysis of DBRS confirms the good prospects of the Luxembourg economy and the positive evolution of our public finances. In particular, the agency stresses the scope of the budgetary room for maneuver which Luxembourg even has in this case an external shock. This underscores the success of our efforts to consolidate public finances and the soundness of the government’s fiscal policy.”