Key downplays prospects for credit rating cut as S&P eyes budget

Monday 25th May 2009

Prime Minister John Key downplayed the prospects of a cut to New Zealand’s AA+ credit rating as Standard & Poor’s analysts prepare to run their ruler over this year’s budget.

Finance Minister Bill English has “got on top of the debt curve,” Key told TV One’s Breakfast show. “It would be irresponsible in my view for the government not to act" to improve the fiscal outlook, he said.

Standard & Poor’s credit analyst Kyran Curry told the NZ Herald that the government needs to dig its way out of budget deficits within five years though S&P would tolerate modest operating deficit. “We are looking for a more sustainable position over the medium term. Curry said, according to the report.

A cut to New Zealand’s sovereign debt rating could add NZ$600 million to the government’s annual borrowing costs, Treasury secretary John Whitehead has estimated.

Key told the Breakfast show that the price for preserving the nation’s credit rating is less spending in this year’s budget.

S&P lowered the rating on New Zealand’s rating to ‘negative’ in December, citing the nation’s dependence on foreign capital and ballooning current account deficits. Curry will be joined in the assessment of New Zealand’s budget by S&P’s London-based managing director of sovereign ratings David Beers, who steered the ratings company’s decision to cut the outlook on the U.K.’s credit rating, the Herald said.

The U.K. decision sparked speculation that America’s AAA rating was also under threat as the Obama administration prepares for a record budget deficit.

Danica Hampton, currency strategist at Bank of New Zealand, said S&P may refrain from cutting the credit rating. Still, she said, there’s a risk that Moody’s Investors Service and Fitch Ratings – which have New Zealand one level higher than S&P.

“While we expect S&P to hold its NZ rating in the wake of this week’s Budget - it's not inconceivable that either Moody's or even Fitch takes the opportunity to put their NZ ratings on negative outlook, if not formally downgrade,” Hampton said.

Businesswire.co.nz

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