-
-
Related
New Zealand has maintained its Standard and Poors AA+ credit
rating and has moved to a stable footing from a negative
outlook.
Earlier this year Standard and Poors put the country on a negative
warning and the government has repeatedly said Thursday's Budget
was designed to prevent a downgrade.
Three executives from ratings agency Standard & Poors have been in New Zealand looking at whether to take its AA+ rating off negative watch and back to stable, or to downgrade it.
NZI Business presenter Corin Dann says that the news has been a bit of a bolt from the blue.
"Not only have we not been downgraded, we've kept that rating and gone up in their estimates to a stable footing," he says.
Dann says this development sends an important signal and that they have given the Budget a ringing endorsement.
Measures announced in the Budget, including decisions not to go forward with tax cuts in the next two fiscal years and not to contribute to the Superfund for an indefinite period, will limit the deterioration in the budget balance in the near term.
Moody's Investors Service has also maintained a stable outlook on New Zealand's sovereign ratings after the release of the Budget.
While the Budget indicated continuing pressure on public finances for several years to come, because the country's finances were starting from a relatively strong position, the Aaa rating was not immediately affected by the projected debt path, Moody's says.
"All advanced economies are seeing fiscal costs associated with the global credit crisis and recession," Steven Hess, Moody's vice-president and lead analyst for New Zealand, says.
"And, in the case of New Zealand, costs resulting from assistance to the financial system are small compared to some other countries. Therefore, the deterioration in the fiscal position indicates a more structural problem rather than the one-time shock coming from the credit crisis."
"Because the starting point for the debt ratios is low, a rising trend for the next several years does not necessarily threaten the government's rating," Hess says.
Compared to most other advanced-country governments, the peak debt ratio projected by the government is still moderate.
Furthermore, debt net of certain Reserve Bank obligations and assets of the Treasury, would be considerably less, peaking at 36 percent of GDP in 2017.
A key consideration after the recession ended would be whether the debt trajectory looked likely to be maintained at or below levels projected in the budget.
"A return to higher economic growth after the recession would be supportive of the rating, but this remains problematic, given New Zealand's small scale and relative lack of diversity compared to larger economies," Hess says.
"So, pressure on the rating could develop after the recession if government revenues do not increase sufficiently."
