Dagong Global Credit Rating Co., Ltd.
May 17, 2018
Dagong Global Credit Rating Co., Ltd. (hereafter referred to as “Dagong”) has decided today to maintain both the local and foreign currency sovereign credit ratings of the Swiss Confederation (hereafter referred to as “Switzerland”) at AAA, each with a stable outlook. Switzerland has a stable debt repayment environment. Reduced risks of currency overvaluation help economic recovery. The fiscal restraint mechanism is steadily implemented, and the government’s debt repayment sources are abundant. Government debt continues to decline from a relatively low level. In addition, with the country’s strong capacity to earn foreign exchange, as well as sufficient international reserves and its position as a net creditor country, Swiss government solvency in local and foreign currency is stable at high levels.
The primary reasons for maintaining Switzerland’s sovereign credit ratings are listed below:
1. The Swiss debt repayment environment remains stable. The federal parliament and administrative federal council continue to rule the country hand-in-hand, thus the political situation is quite sound and policy continuity can be preserved. At the same time, the central bank will continue to maintain negative interest rates to cope with the risks of quantitative easing in Europe and local currency overvaluation. Switzerland strengthens the soundness of the banking system by controlling the growth rate of real estate mortgage loans. The domestic credit ecology is basically stable.
2. Both domestic and foreign demand will help the short-term economy achieve rapid growth, while the medium and long term witnesses relatively strong economic competitiveness. The Swiss central bank has continued to improve its currency overvaluation through a negative interest rate policy and actively intervening in the foreign exchange market. That, coupled with sustained economic recovery in major trading partners, will boost short-term exports while leading to stable growth in consumption and investment. The Swiss economy is expected to achieve a 2.3% and 2.0% growth rate in 2018 and 2019. In the long run, a sound industrial structure, as well as obvious and continuously consolidated technical advantages will help improve labor productivity and international competitiveness of the industry. The medium-and-long-term economic growth is projected to average 1.7%.
3. Public finances remain robust, financial assets are abundant, and government repayment sources are secure. Despite the fact that modest increases in expenditures on education, R&D and social insurance will bring about some financial pressure, it is expected that Swiss general government finances will achieve a 0.4% surplus in 2018 and 2019 under the “debt brake mechanism” centering around curbing structural deficit. The ratio of financing needs to fiscal revenue will be only 1.2% and 1.5% over the same period. That, combined with extremely low financing costs and adequate government financial assets, renders repayment sources secure.
4. The government's solvency stabilizes at a very high level. Given the country’s accelerated economic growth and sustained fiscal stability amongst other factors, it is expected that Swiss general government debt burden will fall to 42.0% and 41.4% in 2018 and 2019, respectively, and that the ratio of Swiss general government debt burden to fiscal revenues will be approximately 125.3% and 123.4%. Hence, government solvency in the local currency is stable. The continued high surplus in current account, huge foreign exchange assets, a net creditor country status and a strong financing ability all guarantee the stability of Swiss foreign-currency solvency.
In the short term, thanks to a sound political system, solid economic resilience, and strict fiscal discipline, the government’s debt burden continues to fall. A strong capacity in earning foreign exchange and sufficient international reserves ensure the stability of the government's solvency. As a result, Dagong has decided to maintain a stable outlook for both the local and foreign currency sovereign credit ratings of Switzerland for the next one to two years.