Moodys warns Queensland on credit rating

The international ratings agency Moody's has downgraded its outlook for Queensland's credit rating.

Moody's says the change from Aa1 with a stable outlook, to Aa1 with a negative outlook, reflects the state's deteriorating financial performance since the 2007-08 financial year and high debt levels.

The ratings agency says the state has faced high infrastructure costs in recent years due to rapid population growth in the south, and demand from the resources sector in the north.

Moody's says the severe floods of early last year also hit Queensland's budget.

In a statement, the agency welcomed the state's new budget plan, but it says the measures face several headwinds.

"The state government has implemented a new fiscal redress plan that aims to restore budgetary balance by 2014/15, largely through constraining growth in expenditures to 2.5 per cent on average over the next four years compared to the 8.7 per cent registered over the past four years," Moody's says.

"This more prudent fiscal approach is a positive development, but actual improvements would take a few years and will be challenged by upward pressures on expenditures related to rapid population growth." But it says the state's Aa1 rating reflects its strong budget flexibility and diverse economic base, as well as support from the Federal Government.

Moody's says the state must reach a sustainable surplus for its outlook to return to stable.

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