The sovereign ratings on the Commonwealth of Australia reflect the country's ample fiscal and monetary policy flexibility, economic resilience, public policy stability, and its sound financial sector. These strengths are moderated by Australia's high external imbalances, dependence on commodity exports, and the risk of a housing market correction. Public sector finances underpin the ratings on the Australian government. Despite providing a large stimulus of almost 5% of GDP over 2009 and 2010, the government's fiscal position remains stronger than most 'AAA' rated peers'. We estimate the general government deficit (including federal, state, and local governments) will likely peak at a relatively modest 3.2% of GDP in 2010, reflecting rising unemployment benefits, a cyclical weakness in tax revenues, and fiscal stimulus
