September 13, 2012 / 12:50 PM / 5 years ago

TEXT-Fitch: Little near-term fiscal impact likely from Dutch election

(The following statement was released by the rating agency)

Sept 13 - The outcome of the Netherlands parliamentary election looks unlikely to affect the adoption of the 2013 budget, and therefore should have little fiscal impact in the short term, Fitch Ratings says.

Despite the strong showing by the two centrist parties recent history suggests that forming a coalition could still take some time, possibly as much as three to four months. This would reduce the possibility of significant changes to the 2013 budget, which have to be made by January. This eases concerns that there will be a prolonged period without a credible plan to ensure that the deficit is below 3% of GDP, consistent with stabilising the government debt to GDP ratio.

The fact that a minority coalition and three opposition parties were able to secure agreement on a deficit-reduction plan after the fall of the ruling coalition in April underlined the broad political consensus around fiscal policy, which we think still exists. Combined with historically broad public support for fiscal discipline, which the election result appears to have reinforced, this has been a ratings strength.

The collapse of the government and the need for early elections increased policy risk and created significant uncertainty around the medium-term fiscal outlook beyond the 2013 budget. This risk could increase if the new coalition negotiations are protracted. Conversely, the formation of a stable centrist coalition could ease these concerns.

The Netherlands' fiscal credibility is an important rating factor. A key challenge facing the new government will be to set out a credible multi-year fiscal consolidation programme that incorporates the impact of aging and a likely period of prolonged low economic growth.

With 96% of votes counted, Wednesday's poll had given the Liberals 41 out of 150 seats in the Dutch lower house, and the Labour party 39 seats. Liberal leader Mark Rutte said coalition talks would start on Thursday, but did not specify with which other parties.

Outright majorities are rare in Dutch parliamentary elections and a period of coalition-building following the vote was widely anticipated. In the meantime, the 2013 budget, based on a deficit-reduction plan agreed in May, will be presented in Parliament on 18 September. The budget aims for a deficit below 3% of GDP in 2013, in line with the Netherlands' commitments under the Stability and Growth Pact.

The Stable Outlook on the Netherlands' rating reflects our assessment that the country's 'AAA' status remains resilient to the eurozone crisis despite the recent increase in policy risks, a weaker fiscal adjustment and the additional debt incurred by the Dutch government's contribution to eurozone rescue funds and bail-out programmes in 2011.

The rating is underpinned by a flexible, diversified, high-value and competitive economy, and current account surpluses and a positive net international investment position. The credit profile also benefits from strong domestic institutions and a track record of sound budgetary management.

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