Sovereign debt: Moody's Investors Service re-iterated the Grand Duchy’s top-notch credit rating in its annual review published late Monday night.
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Moody’s said the Luxembourg government’s financial position is still strong, despite the doubling of its debt ratio since 2008.
The agency also praised the country’s “prudential supervision and rigorous control” of financial institutions, and said investors were re-assured by the “government’s swift and decisive action to limit contagion and preserve stability following problems surrounding Dexia Group.”
In addition, Moody’s said “Luxembourg’s susceptibility to event risk,” stemming from a political, economic or financial shock, “is very low,” and the country’s treasury would likely be able to support another “isolated” bank bailout, if needed.
At the same time, the credit agency warned that the Grand Duchy’s over-dependence on the financial sector could dampen the nation’s economic prospects. “Moody’s believes that the sector’s contribution to future growth could weaken on the back of an evolving tax and regulatory environment that could erode its competitiveness.”
Moody’s is one of the three largest ratings agencies in the world. Many institutional investors can only hold government bonds that are “AAA” rated.
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