The sound management of public finances in Luxembourg is among the key factors referred to by DBRS in order to justify maintaining the highest possible rating. DBRS forecasts that public debt will stabilise well under the Maastricht criterion and the more restrictive threshold set by the government, and that the budgetary balance will remain in surplus for 2017 and 2018. The agency also underlines that Luxembourg's public debt is among the lowest in Europe.
In its analysis, DBRS focuses on political stability and the quality of Luxembourg's institutions, particularly regarding financial sector supervision, which it praised for its strength. The agency also noted that the Grand Duchy is among the top countries in terms of the World Bank governance indicators. This positioning reflects good governance and transparency, as well as the soundess of the regulatory and financial framework. Finally, DBRS highlighted the purchasing power of Luxembourg's households, which is over 2.4 times higher than the eurozone average.
With respect to the potential impact of Brexit on Luxembourg's economy, DBRS considers that it could turn out to be positive, due to the opportunities arising from new companies setting up in the Grand Duchy.
Risks and weaknesses
In terms of risks, DBRS cites the vulnerability to external shocks, as well as the uncertain development of the international fiscal framework. With respect to the property market, the agency has noted an increase in prices since 2010, while noting that the indebtedness of households remains reasonable. Consequently, DBRS considers that the risks for financial stability are under control.
Minister of Finance Pierre Gramegna commented: 'A week after Standard and Poor's reiterated its confidence in the Grand Duchy, I'm delighted that a second agency has also confirmed Luxembourg's 'AAA' rating. DBRS's analysis highlights the excellent fundamentals of Luxembourg's economy, as well as its promising prospects, supported by an estimated growth of over 4%. Once again, this analysis underlines the validity of the government's economic and financial policies.'