Ratings agency Fitch Ratings has affirmed its assessment of Luxembourg’s government debt with a ‘AAA’ rating and a stable outlook.
The firm announced late Friday that Luxembourg’s ratings reflect its “exceptionally high income per capita”, as well as its strong governance indicators and public and external balance sheets, which outweigh the economy’s small size and inherent macroeconomic volatility. Luxembourg’s fiscal buffers allow the authorities ample room to respond to economic shocks without undermining the country’s ‘AAA’ credit fundamentals.
Luxembourg was one of only two EU countries to achieve a budget surplus at the general government level in 2021, following a deficit of 3.4 precent of GDP in 2020. A deficit of 0.4 percent of GDP at the central government level was offset by a surplus in the social security fund, resulting in a headline surplus of 0.9 percent.
Fitch forecasts the general government deficit to widen again this year to 0.5 percent of GDP, driven by measures to mitigate the impact from high inflation. The government has announced measures worth 830 million euro, or 1.1 percent of projected GDP for this year. “We expect that Luxembourg will return to a balanced fiscal stance by 2024, driven by an improvement in the central government balance as economic growth accelerates and temporary measures are phased out,” the agency said.