Luxembourg's Ministry of Finance has announced that, on Friday 4 September 2020, two rating agencies, namely Fitch and DBRS Morningstar, announced the continuation of Luxembourg's “AAA” rating, with a stable outlook; despite the context of the crisis, the two agencies have therefore indicated that the country has the necessary capacity to face the economic consequences of the COVID-19 pandemic.
The two rating agencies have highlighted Luxembourg's favourable starting position, which is characterised by significant room for manoeuvre which has been achieved thanks to the prudent fiscal policy of recent years. This will have enabled the government to react quickly to implement generous measures to support the economy. These measures will inevitably have a considerable impact on public finances.
DBRS Morningstar and Fitch have also estimated that the recession in Luxembourg will be severe, but that it should be less severe than that the average across the euro area and that the economy should recover in 2021 to return to pre-crisis levels. The two rating agencies have therefore attested that, despite a difficult economic context, the fundamentals of the Luxembourg economy remain solid.
Regarding the risks for the coming months, the agencies have raised uncertainties surrounding the course of the COVID-19 pandemic and the pace of the economic recovery. Despite a less favourable external environment and the aforementioned uncertainties, the agencies have considered that the risks for Luxembourg would be manageable if the country continues its prudent political action in economic and financial matters. DBRS has also recognised the efforts supported by the government in the area of tax transparency and believes that Luxembourg should remain an attractive destination for investment.
Pierre Gramegna, Luxembourg's Minister of Finance, commented “I am delighted that the two rating agencies share the observation that Luxembourg is mobilising the necessary means to counter the economic effects of the crisis caused by COVID-19. They also attest that the government's prudent economic and budgetary policy in recent years provides a pledge of confidence and makes it possible to reconfirm the maintenance of the best possible rating, namely the “AAA” rating with a stable outlook for the Grand Duchy."
