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New Zealand's AA credit rating affirmed by Fitch

Wednesday 12th September 2012

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New Zealand's AA sovereign credit rating has been affirmed by Fitch Ratings on the strength of its prudent management of monetary and fiscal policies, though the agency is skeptical the government will get its books back in the black by 2015.

The rating agency said New Zealand has a "strong track record of monetary policy management, prudent fiscal management, high level of economic development, and a strong governance and business environment," which underscored its rating.

It sees the Canterbury rebuild is likely to accelerate economic growth to an average 3 percent until 2014, though "fiscal austerity and lingering weakness in the global economy" may push out the government's return to surplus until 2016. The delay to getting the books back in the black won't have a negative rating impact, it said.

Finance Minister Bill English yesterday told Parliament he has recently met with rival rating agencies Moody's Investors Service and Standard & Poor's, who told him "they have noted the good progress the government is making in getting its own finances in order and returning to surplus, while many other countries face many more years of deficits and rising debt."

"Our moderate growth rate and our positive household savings rate compare favourably with that of many other developed countries, but they reiterate our need to reduce our high levels of household debt, which remain as yet New Zealand's single-biggest vulnerability to international economic events," English said.

Fitch and S&P both cut New Zealand's credit rating one notch last year after the Canterbury earthquakes punched a hole in the government's balance sheet, and as the nation retained a high level of private debt. Moody's kept New Zealand's Aaa rating, with a stable outlook.

The country's high level of external indebtedness has led to policymakers pushing a structural shift to increase household savings, something that turned positive in the 2011 financial year.

"Fitch believes it remains too early to determine if this represents a structural shift or a cyclical response," it said.

The agency said New Zealand's external debt is "significantly above the 'AA' range median of minus 18 percent of GDP (gross domestic product)," and it needs to improve to shore up the sovereign's credit profile.

The kiwi dollar rallied to a month-high in the Northern Hemisphere session after Moody's warned it may downgrade the US' credit rating, and recently traded at 81.68 US cents. The yield on the New Zealand's 10-year government bond rose 2.5 basis points to 3.625 percent.

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