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NZ debt compares favourably with other countries

Friday 14th January 2011

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Despite a significant worsening trend in the government's debt levels, New Zealand still compares favourably to a group of other countries with the same debt rating, ratings agency Moody's Investors Service says.

New Zealand is among a range of countries covered in Moody's latest regular update on Aaa-rated sovereign governments.

The four largest economies in the group are the United States, Germany, France, and Britain, while among the others are Australia, Canada, Norway and Switzerland.

While focusing on the "big four" Aaa-rated sovereigns, Moody's also provided updates on the three Aaa-rated sovereigns in the Asia-Pacific region - Australia, New Zealand and Singapore.

Fiscal metrics for Australia and Singapore were among the strongest of Aaa-rated sovereigns, Moody's said.

It expected Australia to continue to post one of the lowest debt levels of any Aaa-rated sovereign, and while Singapore's debt was higher, the country was a net creditor and forecast to record the fastest growth rate in Asia for 2010.

"New Zealand's debt position compares favourably with the group, but its near-term trajectory shows a further rise in its debt ratios before a reversal is achieved."

From a low point of 26% of GDP just before the New Zealand economy entered a prolonged, but mild, recession, the ratio of gross general government debt to GDP had risen to over 40% and would rise somewhat further over the next few years, Moody's said.

The central government's net debt, which was the government's policy target, was projected to rise from a low of about 6% of GDP in 2008 to nearly 30% in 2015, when it would peak and begin declining. The long term goal of fiscal policy was to reduce that ratio to under 20%.

Even at projected peak levels, New Zealand's general government debt levels were well below the median for Aaa-rated countries, both as a percentage of GDP and of government revenues.

"Even with some further slippage in government debt ratios coming from slower growth or other one-time shocks, it appears highly likely that these ratios will remain within the stronger side of the Aaa range," Moody's said.

This country's economic strength was classified as "high" rather than "very high", because of a relative lack of diversity in the economy.

"Another external shock that affected economic growth could, of course, derail the path toward fiscal consolidation, but the baseline indicates that New Zealand's fiscal position will continue to support its Aaa rating."

In its comments on the big four Aaa economies, Moody's emphasised that all four faced dramatic increases under existing policy commitments arising from ageing-related pension and healthcare subsidies.

Those future costs must be brought under control if the countries were to maintain long term stability in their debt burden credit metrics, Moody's said.



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