Netherlands enjoys healthy public finances

In its annual report on The Netherlands, Moody’s Investors Service said its Aaa government bond rating and stable outlook reflect the country’s healthy public finances, including government debt ratios well below Eurozone averages.

“The Dutch economy has shaken off its slowdown following an overheating episode earlier in the decade,” said Moody’s Vice President Alexander Kockerbeck. “We expect the payoff from structural economic reforms to be realized in coming years, barring unforeseen fallout from the global credit crunch.”

He pointed out that economic recovery and public expenditure restraint have brought government deficits down since 2004. Meanwhile, labour market reforms have improved productivity and competitiveness, and job creation is brisk.

Fiscal consolidation is set to continue in the medium term, with the government targeting small budget surpluses,” Kockerbeck said. In addition, he said, the long-term challenges posed by an ageing population are partially mitigated by the accumulation of significant private sector retirement assets that will supplement public sector pension funds.

“The tight labour market and high energy prices remain risk factors for consumer price and wage inflation,” said Kockerbeck. “Another risk factor is the high level of accumulated mortgage debt of Dutch households, a counterpart to rising house prices that make them vulnerable to adverse shocks.”

Due to the demographic change, he added, the financial base for old-age pensions and healthcare is set to shrink substantially, and expenditures will rise. “The government is aware that further pension reform measures will be necessary going forward,” said Kockerbeck.