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Related Issuers
Rating Action:

Moody's affirms the Aaa issuer rating of the Netherlands; maintains stable outlook

31 Mar 2017

Frankfurt am Main, March 31, 2017 -- Moody's Investors Service has today affirmed the Aaa long-term issuer rating, the Prime-1 (P-1) short term issuer rating and the Aaa senior unsecured ratings of the Government of the Netherlands. The outlook remains stable.

The key drivers for affirming the Aaa rating and maintaining the stable outlook are:

(1) The sound public finances of the Netherlands with a declining debt-to-GDP ratio set to fall below 60% of GDP within the next two years.

(2) The highly competitive, diversified and open economy of the Netherlands which we expect to expand annually by 1.8% to 2.0% over coming years.

(3) The very sound institutional framework of the Netherlands with its broad consensus for prudent fiscal policy.

The long-term country ceilings for local and foreign currency bond and bank deposits for the Netherlands remain unchanged at Aaa. Its short-term country ceilings for foreign-currency bonds and bank deposits remain unchanged at Prime-1 (P-1).

RATINGS RATIONALE

FIRST DRIVER: THE SOUND PUBLIC FINANCES OF THE NETHERLANDS WITH A DECLINING DEBT RATIO

The first driver of our rating action relates to the sound public finances of the Netherlands. Moody's anticipates that the general government debt-to-GDP ratio will fall below 60% by the end of 2018. This will be supported by a continuation of small budget surpluses as well as by the proceeds derived from the privatisation of those assets remaining in public ownership after having been nationalised during the financial crisis, such as the remaining stake owned by the government in ABN AMRO Bank N.V.

The debt of the Netherlands is highly affordable, as reflected in a low interest-payments-to-revenue ratio of 2.4% in 2016. The Netherlands also benefits from depressed yields in the context of the quantitative easing policy of the European Central Bank, contributing to an expected further decline in interest payments.

In 2016, the fiscal surplus was 0.4% of GDP (from a deficit of 1.9% of GDP in 2015), supported by the economic recovery and higher-than-expected tax collection. Higher receipts from taxes came mostly from social contributions, but also from corporate and value added tax, partially offset by a decline in gas revenues related to reducing production in the Groningen field. For 2017 and 2018, we expect a further small fiscal surpluses of 0.3% and 0.5% of GDP, respectively.

SECOND DRIVER: THE HIGHLY COMPETITIVE AND DIVERSIFIED ECONOMY OF THE NETHERLANDS

The second driver of our rating action is based upon the very high economic strength of the Netherlands. We expect the economy to expand annually by close to 2.0% over coming years. Domestic demand has strengthened, with investment lifted by a recovery in the housing market. Consumption is supported by rising house prices and increasing employment as well as by a lower fiscal burden following a €5 billion (0.7% of GDP) tax reduction package. Exports will continue to play a key role, also supported by the weaker euro, and benefiting in 2017 from recovering world trade.

The very high non-price competitiveness of the Netherlands is reflected in its 4th ranking (out of 138 countries) in the 2016/2017 World Economic Forum Global Competitiveness Index (WEF GCI). This is not only a very high ranking but also an improvement from 5th place last year and from 8th place the year before, driven partly by improved macroeconomic conditions and partly by structural reforms.

The economy of the Netherlands remains highly competitive, both from a price and a non-price perspective, which is reflected in its limited loss of export market share as compared with other euro area countries, including Germany (Aaa stable). Overall, the Netherlands exhibits several important strengths in competitiveness that allow it to remain highly productive: excellent infrastructure (3rd place in the respective subscore of the WEF GCI) combined with high quality higher education and training (3rd place) support the creation of a sophisticated business environment (5th place). The Netherlands also scores exceptionally well in the quality of port infrastructure (1st place) as well as in the burden of customs procedures (8th place), which are important factors for the Netherlands as an open export and re-export driven economy.

THIRD DRIVER: THE SOUND INSTITUTIONAL FRAMEWORK OF THE NETHERLANDS WITH ITS BROAD CONSENSUS FOR PRUDENT FISCAL POLICY

The third driver of our rating action relates to the sound institutional framework of the Netherlands. The country has a track record of maintaining prudent fiscal policies and relatively low debt levels, based upon broad consensus in favour of fiscal consolidation and debt reduction. Moreover, the Netherlands benefits from a consensus-driven approach to managing its economic affairs (sometimes referred to as the 'polder model').

The Worldwide Governance Indicators assess the institutional framework of a sovereign in quantitative terms. In line with other highly rated euro area and OECD countries, the Netherlands scores highly for government effectiveness, rule of law and control of corruption, reaching the 95th, 95th and 92nd percentile amongst all sovereigns rated by Moody's.

WHAT COULD RESULT IN A DOWNGRADE

Downward pressure upon the rating might occur if we were to observe persistent economic weakness or if we were to conclude that fiscal metrics were likely to deteriorate significantly, with the deficit, the overall debt burden or debt-financing costs on a rising trend. Separately, a significant rise in the risk of euro area fragmentation, particularly prompted by events in core countries such as France (Aa2 stable) or Italy (Baa2 negative), which suggested a sharp rise in the risk of their exit from the euro area, would be negative for all euro area member countries and would exert pressure upon the rating of the Netherlands.

GDP per capita (PPP basis, US$): 49,624 (2015 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 2.2% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1% (2016 Actual)

Gen. Gov. Financial Balance/GDP: 0.4% (2016 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: 8% (2016 Actual) (also known as External Balance)

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 28 March 2017, a rating committee was called to discuss the rating of the Government of the Netherlands. The main points raised during the discussion were: The economic fundamentals of the issuer, including its economic strength, have not materially changed. The institutional strength/framework of the issuer, have not materially changed. The governance and/or management of the issuer, have not materially changed. The fiscal or financial strength of the issuer, including its debt profile, has not materially changed.

The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Simon Griffin
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
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