MELBOURNE, AAP – Moody’s has stripped Victoria of its much-vaunted AAA credit rating.

The international ratings agency on Tuesday downgraded the state’s rating to AA1 and changed its financial outlook to “negative”.

Moody’s blamed the state’s huge post-pandemic debt bill for the downgrade, which according to treasury is forecast to triple to $154.8 billion in 2023/24.

“The downgrades reflect a marked erosion in Victoria’s governance of its public finances, at a time when the state faces substantial operating deficits as it responds to the pandemic-induced economic disruptions and embarks on a significant capital spending program,” Moody’s vice president and senior credit officer John Manning said in a statement.

“As a result, the state’s debt burden will rise sharply and remain elevated for the remainder of the decade.”

Mr Manning says the “rapid and prolonged growth in debt” will “constrain the state’s capacity to respond to future shocks”.

The Victorian economy had been affected more than any other state or territory due to its second wave of COVID-19 and subsequent 112-day lockdown.

A third, five-day lockdown, due to an outbreak of the UK variant of the virus, recently ended.

It comes after Standard & Poors downgraded the state’s credit rating by two notches from AAA to AA in December, citing a weaker fiscal outlook due to the pandemic.

At the time Treasurer Tim Pallas said the loss of the rating was “eminently manageable”.

He said it would mean an increase in borrowing payments by about $10 million a year.