Sharechat Logo

Moody's puts its stamp of approval on the government's finances

Tuesday 18th December 2018

Text too small?

Moody’s Investors Service says the Labour-led government’s latest half-year economic and fiscal update maintains its commitment to fiscal discipline which supports its “Aaa” sovereign credit rating and stable outlook.

The other two major international ratings agencies, Standard & Poor’s and Fitch, both have New Zealand’s foreign currency rating at “AA” with a stable outlook.

“The update maintains the government’s commitment to fiscal discipline as demonstrated by projections for continued budget surpluses and debt reduction,” Moody’s analyst Matthew Circosta says.

Treasury has forecast the government’s surplus for the year ending June will be 0.6 percent of GDP and 1.3 percent in fiscal 2020.

Circosta notes that’s lower than the initial budget forecasts of 1.2 percent and 1.7 percent and down from the higher-than-expected 1.9 percent surplus for fiscal 2018.

“The changes in the 2018 and 2019 projections partly reflect the timing of government spending – the broad direction of fiscal policy is unchanged,” he says.

Treasury expects tax revenues to keep increasing as a share of GDP, driven in part by higher corporate tax receipts. That will push overall government revenue to 31 percent of GDP by 2023 while government spending remains broadly flat as a share of GDP at about 28 percent.

“We forecast that the budget will remain in surplus and that gross central government debt will edge down to 27 percent of GDP in 2019, from about 29 percent in 2018, and fall further thereafter in line with the government’s projections,” Circosta says.

“At these levels, gross central government debt is significantly lower than many other 'Aaa' rated sovereigns,” he says.

Moody’s notes the government’s plan to launch a “well-being budget” using the “living standards framework” next year to enhance the social, cultural and environmental impact of investment and funding decisions.

“The government is already demonstrating its focus on well-being priorities. For example, the government’s Families Package aims to significantly reduce child poverty. The recently announced Green Investment Fund, once established, will use private and public capital to finance low carbon emission and climate change mitigation projects,” Circosta says.

“Given its robust public finances, the government has the flexibility to fund higher spending on families, infrastructure, affordable housing and education – including through the ‘living standards framework’ – while maintaining fiscal surpluses and debt reduction,” he says.

While Treasury is forecasting average annual real GDP growth of 3 percent in 2019/20, lower than the budget projections, that’s still above Moody’s forecasts.

“We expect continued solid global demand for New Zealand’s agriculture and tourism, robust investment in housing and slower population growth to support real GDP growth of around 2.5 percent in 2019 and 2020,” Circosta says.

Risks to growth include further restrictive trade policies globally while ongoing weakness in consumer and business sentiment could hurt private consumption and investment, he says.

(BusinessDesk)

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar steady ahead of Fed decision, NZ GDP
Vital proceeds with $37m first stage of Wakefield Hospital redevelopment
Risks from exploration ban coming to pass
Pushpay lifts annual earnings guidance; shares rise
Treasury mindful of gaps in living standards framework
Cannasouth slumps on debut as investors back blue-chips
Zespri signals profit growth, trims expected fruit and services payment
Wider annual current account deficit meets expectations
Wider annual current account deficit meets expectations
19th June 2019 Morning Report

IRG See IRG research reports