The favourable situation of Luxembourg's public finances is a key factor justifying the AAA rating given by Firch Ratings on the Grand Duchy on Friday.
By comparing the situation in Luxembourg with other countries rated "AAA" by Fitch, Luxembourg's public debt was the lowest in 2016, accounting for 20.8% of GDP and the budgetary balance of 1.6% of GDP. GDP was well above the median of + 0.2% of GDP.
In its analysis, Fitch also points out that Luxembourg's growth over the last five years was on average much higher than that of other AAA countries and the euro area. The agency believes that this positive trend will last for the period 2017-2019, notably thanks to the beneficial effects of the tax reform on household consumption.
On the risks side, the agency points out the possible consequences of a disorderly exit of the UK from the EU and a possible protectionist turnaround in the world economy. Despite the sharp rise in property prices in Luxembourg, Fitch considers that the risks to financial stability are limited. In this context, the agency underlines the solidity of the banking sector, which at the end of 2016 had a level of capital ratio of 24.1% and one of the lowest bad debt rates in the EU.
Pierre Gramegna, Luxembourg's Minister of Finance, commented "This new confirmation of the 'AAA', which follows the presentation of the 2018 budget, testifies to the success of the political choices of the government. The implementation of structural reforms and an environment conducive to good economic development have clearly contributed to the good development of our country's public finances. However, such a rating is not to be taken for granted. Continued efforts will be needed to maintain the medium-term and long-term balance of the budget and to ensure Luxembourg's attractiveness on an international scale."
