Rising state debt in NSW hasn't tanked the state's triple-A credit rating.
Moody's on Tuesday affirmed the state's top-notch rating and maintained its stable outlook for NSW borrowings.
The state's credit profile balanced a high and rising debt burden against relatively strong debt affordability with unfettered access to funding markets, the agency said.
A high credit rating signals a government is unlikely to default, opening the door to low interest rates.
Moody's in March sounded the alarm about the impact of rising healthcare spending, soaring inflation and a weakening housing market in the state.
Some of those concerns were raised again in Tuesday's note as NSW tracks towards a debt burden of 150 per cent in 2026, up from 60 per cent in 2019.
Moody's said that projected level of debt was "not consistent within current rating tolerances".
"Over time, the state's institutional capacity will be tested as Moody's expects persistent inflation pressures, the removal of public sector wage caps and new recurrent operating expenditure initiatives ... to occur amid underlying pressure to implement fiscal repair and curb the state's rising debt burden," it said.
Treasurer Daniel Mookhey celebrated the reaffirmed credit rating after the state's fiscal position weakened in recent years.
"We are still in the early stages of setting NSW's finances on a sustainable footing," he said.
"We look forward to continuing this work in the next budget."
In his first budget, delivered last month, Mr Mookhey predicted a deficit of $7.8 billion in 2023/24 before a modest surplus of $844 million in 2024/25.
The forecast came despite a big rise in spending on key items such as public-sector pay and new schools and hospitals.
Gross debt is due to reach $173 billion in the 2026 financial year, $15 billion lower than the final projection made under the coalition.
S&P Global, which rated NSW as AA+ last year, said in June it was unlikely the state would regain the triple-A credit rating until the second half of the decade due to debt levels.
NSW also holds a triple-A rating with the other major rating agency, Fitch.
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