Moody's confirms Luxembourg's triple A rating

Rating agency Moody's has confirmed a triple A rating for Luxembourg because of its high wealth levels and strong government, but warned of a negative outlook.

"The solvency of Luxembourg is due to its high level of wealth, its proactive policy and strong government," the agency said in a statement on Tuesday.

It added, however, that the Grand Duchy had a negative outlook because of uncertainty relating to the debt crisis in the eurozone and the economy's dependence on the financial sector.

Regarding the latter point, Moody's conceded that risk was minimal. It said: “Although the financial sector is over-sized in relation to the global economy, financial and economic risks involved are relatively small."Other positive feedback referred to Luxembourg's “proactive policy,” benefiting the development of the financial sector which has maintained a strong government balance sheet.

Moody's pointed out that changes in regulatory and fiscal frameworks within the EU and restructuring of the financial sector had stunted growth potential.

The agency also said that it was concerned about the loss of VAT revenue which will take place in 2015, which could mean a loss of 1.4 percent of GDP. At the same time the social security deficit will worsen becuase of demographic and economic developments.

Overall, Moody's was optimistic and based on past flexibility, it was confident that the government will make appropriate budgetary adjustments over the next year.