The credit outlook for Germany’s federal states is stable but debt levels are relatively high, leaving the regions vulnerable to revenue shortfalls, a Moody’s Investors Service report said on Monday.
The stable outlook for the six states rated by Moody’s reflected the federal government’s improved financial performance, sound budget policies and the “very high likelihood” of support by the federal government in the event of a default threat. “The German Laender’s (states’) key characteristics as a high-quality class of issuers have been affirmed in the recent financial crisis,” said Andrea Wehmeier, a senior Moody’s analyst. “As a result, they have displayed an almost stable level of primary market issuance on the capital markets and a comparable stability in spreads of outstanding bond issues,” she added.
Current ratings for the six states assessed by Moody’s range from Aaa to Aa1, with Baden-Wuerttemberg and Bavaria enjoying the top Aaa rating and Berlin, Brandenburg, North-Rhine Westphalia and Saxony-Anhalt all one notch down on Aa1. Wehmeier said the states’ revenue outlook for 2008 remained “cautiously optimistic”, although she expected growth to slow as the double-digit rates achieved in 2006 and 2007 were unlikely to be repeated. “In addition, whilst challenges and risks exist and indebtedness remains very high in an international comparison, we expect the ratings to remain stable over the medium term,” she added. Challenges for the states included stalling progress in structural reforms, financial risks associated with the activities of some state-owned banks and a high portion of unfunded future pension obligations, the report said. (Reuters)