Economic strength underpins NZ's triple-A rating

Thursday 12th January 2012 1 Comment

New Zealand’s Aaa sovereign credit rating with Moody’s Investors Service is underpinned by the nation’s economic strength and low vulnerability to event risk, the rating agency said today.

Moody’s said the government’s fiscal and debt positions were very strong, and any threats from the nation’s high level of private debt was mitigated by the fact that the majority of those liabilities are held by the nation’s Australian-owned banks. Still, New Zealand’s total external liabilities equalling 159 percent of gross domestic product is the nation’s biggest vulnerability, and prompted downgrades by rival rating agencies Standard & Poor’s and Fitch Ratings at the end of September.

“A strong fiscal framework, which has supported the successful track record of fiscal prudence under governments of both major political parties, provides some assurance that the budget balance will return to surplus by the middle of the decade,” Moody’s said. “The negative net international investment position has been large for many years without substantially affecting the government’s finances.”

The government has worked to keep its net debt below 30 percent of GDP, even as it borrowed a record $20 billion last financial year, and Moody’s said set to peak below the average ratio of other triple-A rated nations.

Finance Minister Bill English has asked government departments to come up with creative ways to cut spending without reducing the level of services, and the Treasury is asking private sector parties to come up with ideas to cut government costs and improve service delivery.

New Zealand’s operating deficit of $3.36 billion in the four months ended Oct. 31 bigger than forecast as total individual tax revenue accrued fell short of expectations.

The rating agency noted New Zealand’s rising vulnerability to earthquakes after the temblors in Canterbury caused upwards of an estimated $20 billion in damage.

Investors rallied to New Zealand government debt in the first sale on Tuesday, with short-term bills attracted bids worth three times the $1.48 billion sold.

The New Zealand dollar little changed at 79.64 US cents and the yield on 10-year government bonds fell 1.5 basis points to 3.88 percent.

(BusinessDesk)

BusinessDesk.co.nz

Comments from our readers

On 13 January 2012 at 3:50 pm john said:

S&P clearly do not agree...and the reason also stated. Beyond me how the deficit can increase to 20bln without a corresponding increase in SD!? Expliquez s'il vous plait!? Most of that short term funded and in offshore currencies, creating an extreme vulnerability to an international liquidity crunch...and san comment re the undiversified exposure of most of the private sector debt lying with just 4 offshore Australian Banks! Who also have to be somewhat exposed given their short term funding exposure to residential property, and that country's exposure to a property collapse!? As for English's efforts to reduce govt costs without affecting service...where is the radical approach needed....note again the at least 6 govt agencies investigating the balloon disaster and the overwhelming evidence of duplication that provides! What is the structural deficit!? and where is the game plan to wind it in...and to stop pouring available funds down the non-contirbutory sump hole at the expense of investment and the new industries and jobs plus tax revenue that goes with that Cannot fail to note also the drop in revenues....indicative of slowing growth...and that like is how you enter the so called death spiral