A stable outlook and a controlled budget: rating agency Moody's praised the state of public finances in Luxembourg with a 'Triple A' rating, but pointed out that certain risks threaten the country's success story.

After Luxembourg was already awarded a Triple A status by Fitch at the beginning of 2023, the Moody's credit rating agency has now also recognised the Grand Duchy's economic stability.

The agency wrote: "this high rating reflects Luxembourg's economic resilience, the soundness of public finances, and the transparency and efficiency of government institutions."

Minister of Finance Yuriko Backes commented on the rating: "Maintaining the AAA rating with a stable outlook underlines the solidity of our public finances and confirms the validity of the measures taken during the last tripartite meeting. These measures support the purchasing power of households and mitigate the negative impact of the energy and inflationary crisis on businesses, without jeopardising our commitment to keep public debt below 30% of GDP at all times."

Despite the deterioration of the global economic situation due to current inflationary pressures, Moody's stressed that "Luxembourg's economic fabric remains robust. The rating agency expects a GDP growth of 1% in 2023. For 2024, the agency forecasts growth of 2%."

According to Moody's, the measures taken by the government in the context of the tripartite meetings "together with the good performance of the labour market mitigate the negative effects of the inflationary environment on companies and households and protect jobs in 2023."

As for the financial sector, which remains one of the fundamental drivers of growth, Moody's highlighted "the diversification of the sector into investment funds, wealth management, and insurances." The agency also praised "efforts to diversify the economy into high value-added industries, such as information and communications technology (ICT), health industries, and environmental technologies."

According to Moody's, "the rigorous regulation of financial services and transparent and efficient institutions notably reduce the probability and magnitude of potential financial and economic shocks."

Finally, Moody's also highlighted the strength of public finances despite the fiscal impact of the support measures. The rating agency expects Luxembourg to continue meeting the 30% of GDP threshold for public debt set by the government. According to Moody's estimates, the level of public debt will increase from 26.3% of GDP in 2023 to 28.6% in 2024. At the same time, Moody's pointed out that certain fiscal risks persist, such as long-term economic and budgetary pressures related to population ageing.