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���������ֳ�-London/Brisbane-February 3, 2003: ���������ֳ�, the international rating agency, today raised the Commonwealth of Australia's Long-term foreign currency rating to 'AA+' from 'AA'. The upgrade reflects the continuing impressive performance of the Australian economy, its capacity to withstand shocks - demonstrated again through the global economic and financial turmoil of 2001-02 - and a clearer picture of how the private sector manages foreign exchange risk. The Short-term foreign currency rating remains unchanged at 'F1+', as does the Long-term local currency rating of 'AAA'.

���������ֳ� says the Australian economy continues to post strong growth, outpacing most other rich OECD countries: the current expansion now stands as one of the longest on record with 46 quarters of growth from Q391 to Q302, exceeding similar expansions in the 1970s and 1980s. Interest rates are close to 30-year lows, while underlying inflation has been tamed to around 3%, underpinned by wage moderation and strong productivity growth: labour productivity has been rising more than twice as fast as the EU since 1996 and compares favourably with the US. Robust fiscal policy, inflation targeting, flexible exchange rate policy and broad-based structural reforms have enabled the economy to navigate a catalogue of external shocks including the Asian crisis, commodity price fluctuations, the global economic slowdown and international capital market volatility of 2001-02, with comparative ease.

Given Australia's traditional savings and investment imbalances, a track record of sound public finance has played a key role in cushioning the domestic economy from shifts in investor sentiment and fiscal policy is viewed as a clear rating strength. The general government balance remains in slight surplus over the course of the business cycle and general government debt/GDP easily ranks as the lowest of any 'AA+' rated sovereign, having fallen by almost half to 17% since 1996. Cumulative budget surpluses combined with sizeable privatisation receipts have helped reduce Commonwealth net debt to 5% of GDP in the fiscal year ended June 2002.

���������ֳ� takes comfort from the fact that households, banks and corporates have withstood a series of stress tests in recent times, most notably the sharp depreciation in the real exchange rate in 2000-01, without undue pain to their respective balance sheets. The escalation in house prices merits close scrutiny going forward, funded as it is by banks' high net offshore exposure, and ���������ֳ� welcomes recent data suggesting that the housing market may be starting to cool. A severe drought will trim growth to around 3.2% in 2003. Nonetheless, strong domestic demand, the recent appreciation of the AUD and uncertain global economic prospects point to continuing pressures on the current account balance and external indebtedness.

Although the public sector itself has been a net external creditor for some years, ���������ֳ� has long cited persistent current account deficits, high (private sector, largely banks) net external indebtedness and low external liquidity as key constraints on Australia's sovereign foreign currency rating. These credit traits show no sign of abating for the most part and ���������ֳ� continues to attach considerable weight to them. That said, the agency is encouraged by the manner in which external debtors have surmounted adverse external shocks in 2001-02, a feature which owes much to well-developed risk management techniques. Recent surveys confirm that banks and private corporations employ a variety of hedging instruments and provide a much better appreciation of the depth of risk management throughout the private sector. Future shifts in investor sentiment appear unavoidable, but Australia's ability to absorb the associated shocks now seems well proven. The rating outlook is Stable.

CONTACT: Paul Rawkins, London Tel: +44 (0)20 7417 4239; Brian Coulton (Mobile) +85 (2) 9383 3275; Andrew Smith, Brisbane +61 (7) 3222 8618


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