On 13 October 2016, rating agency Fitch Ratings confirmed the 'AAA' rating for the Grand Duchy of Luxembourg with a 'stable' outlook. The favourable situation of Luxembourg's public finances is a key element justifying this rating. When we compare Luxembourg's situation with other countries awarded the 'AAA' rating by Fitch Ratings,Luxembourg's public debt was the lowest in 2016, with 20.8% of GDP, and the budget balance at +1.6% of GDP was well above the median of +0.2% of GDP.
In its analysis, Fitch also underlines that on average, Luxembourg's growth over the past five years was much higher than in other 'AAA' countries and in the euro zone. The agency believes that this positive trend will continue over the 2017-2019 period, in particular thanks to the beneficial effects of tax reform on household consumption.
In terms of risks, the agency indicates the possible consequences of the UK's potentially disorderly exit from the EU and a potential lurch towards a protectionist position in the world economy. Despite the strong increase in property prices in Luxembourg, Fitch considers that the risks for financial stability are limited. In this context, the agency underlines the solidity of the banking sector which had, at the end of 2016, a shareholders' equity ratio of 24.1% and one of the lowest bad loan ratios within the EU.
According to the Minister of Finance Pierre Gramegna, this new confirmation of the 'AAA' rating, following on from the presentation of the 2018 draft budget, demonstrates the success of the government's political choices. The implementation of structural reforms and an environment favourable to economic development have clearly contributed to the favourable developments in our country's public finances. However, this rating must not be taken for granted. Continued efforts will be required in order to maintain the budget balance in the medium and long term, and in order to ensure the attractiveness of Luxembourg at an international level.
(Source: press release from the Ministry of Finance)