Moody’s gives Switzerland full marks

Federal finances have shown "substantial improvement" Keystone

Switzerland has been given a pat on the back by Moody's Investors Service, receiving top marks in the rating agency's annual report on the country.

Moody’s gave Switzerland an “Aaa” rating for foreign currency debt and domestic bonds situations, saying they reflected the country’s “open, highly-developed and diversified economy”.

Bonds and preferred stock rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as “gilt edged”. Interest payments are protected by a large or exceptionally stable margin and principal is secure.

“Switzerland also benefits from a large financial services sector, high per capita income levels, a history of fiscal prudence, low inflation and a strong net external creditor position,” said Moody’s senior analyst, Alexander Kockerbeck, author of the report.

The agency said federal finances had shown a substantial improvement over the past two years. “Plans have already gained credibility through a rule-driven fiscal policy approach that will be in place by 2003,” Kockerbeck said.

He explained that since the public sector only borrowed domestically, the country’s foreign currency debt consisted primarily of banking sector obligations.”

“Well matched by the banks’ foreign assets, these liabilities reflect Switzerland’s role as an international banking centre and its status as a safe haven,” he added.

Moody’s said Switzerland’s long history of political stability also contributed to the rating.

The government benefited in 2000 from GDP of three per cent, which helped to eliminate the fiscal deficit a year earlier than planned.

Structural reforms

“However, the authorities cannot rely on benign macroeconomic factors to support fiscal consolidation in the future,” commented Kockerbeck.

“With clear signs of a global economic slowdown, it is all the more important for the country to press ahead with structural reforms,” he added.

In particular, the Swiss social security system will face a major challenge to cope with the mounting financial burdens of an aging population.

“Further progress in the opening up of sheltered service sectors seems also necessary to combine stronger potential growth with low inflation, to enhance income generation and to prevent new fiscal deficits and debts,” the Moody’s analyst said.

swissinfo