Treasurer Josh Frydenberg says the decision by Standard & Poor's to keep Australia on its top-tier AAA rating is a vote of confidence in the Morrison government's response to the COVID-19 crisis.
S&P affirmed Australia's credit rating on Tuesday but has kept the outlook on negative.
"There is still a long way to go in recovering from this health and economic crisis," Mr Frydenberg said in a statement.
"But the Australian economy is fighting back with around 60 per cent of the 1.3 million people who lost their job or were stood down on zero hours in April now back at work."
However, the global credit rating has warned Australia's AAA credit rating could be lost if the economic damage from the coronavirus pandemic is prolonged.
"The negative outlook reflects our view that Australia faces fiscal and economic risks that are tilted toward the downside," S&P said in a statement.
It warns it could lower the rating within the next two years if the COVID-19 outbreak causes economic and fiscal damage that is more prolonged than currently expected.
But it says the outlook could revert to stable if the general government fiscal balance improves broadly in line with its expectations as the economy recovers.
"Stronger fiscal outcomes would provide the sovereign with a buffer to absorb another potential economic or financial shock," it says.
Australia is one of just nine countries to have a AAA rating from all three main agencies, which includes S&P, Moody's Investors Service and Fitch Ratings.
Fitch Ratings director for Asia sovereign rating Jeremy Zook warned once a country loses it AAA rating it can be quite difficult to regain.
"We have not had so far a case where a sovereign has regained AAA since losing it," Mr Zook told an IFR Australia DCM Roundtable webinar on Tuesday.
Fitch put Australia on a negative outlook in May, reflecting a significant deterioration in public finances as a result of the pandemic.
"While we do think Australia has fiscal space to respond to the coronavirus shock, certainly from here on out that fiscal space becomes much more limited," Mr Zook said.
He said the government in its recent budget, which sees gross debt topping $1 trillion in the next financial year, did put forward a plan to stabilise debt over the medium term.
"We do still see a lot of risks around the outlook," Mr Zook said.
"We see more substantial scarring in the Australian economy as a result of the coronavirus shock that could weigh further on growth, requiring a longer period for unemployment to drop below the government's six per cent unemployment rate threshold that they have set."
The government has said it will not be targeting a budget surplus again until the jobless rate is comfortably below six per cent. The Treasury does not expect that to happen until 2023/34.
Australian Associated Press
