Victoria's credit rating downgraded again

Victoria's credit rating has been downgraded again but agencies have said the outlook looks stable.

Moody's downgraded Victoria from AA1 to AA2 on Friday after stripping it of its AAA status in February last year.

But in some good news for the state, the ratings agency upgraded Victoria's outlook to "stable" after relegating it to "negative" in 2021.

Back then, the ratings agency pointed to the state's coffers struggling under the weight of pandemic-induced economic disruptions.

But the recent strong rebound in economic activity as statewide lockdowns subsided saw the outlook upgraded.

Moody's said the state's debt management policies and other general policy priorities would drive a "significant increase" in Victoria's debt burden.

"As a result, (the Treasury Corporation of Victoria's) intrinsic financial strength will remain weaker, from strong levels, for the foreseeable future," the ratings agency said.

It also warned the state's debt position may not stabilise until the end of 2026-27.

Victoria has copped a series of downgrades since the pandemic started, including Standard & Poors lowering its credit rating from AAA to AA in late 2020.

Victorian Treasurer Tim Pallas downplayed Moody's initial demotion in February last year.

"No one is immune from the impacts of the pandemic, but Victoria is more strongly placed than most jurisdictions in the world to recover," he said at the time.

Moody's said on Friday sustained boosts in revenue growth and cuts to spending could see Victoria's credit rating upgraded.