S&P affirms NZ credit rating on expectation govt will get books back in black

Friday 28th August 2015

New Zealand's credit ratings were affirmed by Standard & Poor's, which expects the government to get its finances back into surplus, even if low inflation and slowing growth make that more difficult.

S&P kept the local currency long-term and short-term ratings for the country at AA+/A-1+, and affirmed the foreign currency long-term and short-term ratings at AA/A-1+, the ratings agency said in a statement. The agency also retained its stable outlook on New Zealand, reflecting its expectation the fiscal performance will continue to improve, even as external debt will remain high.

"New Zealand's fiscal performance is gradually improving, following the negative impacts of the 2008 global recession and the 2010-2011 Canterbury earthquakes," S&P said. "Our rating affirmation with a stable outlook is premised on our expectation that the central government will continue to improve budget performance over coming years. We see rising public sector savings as a necessary response to declining private sector savings."

In May, S&P said the government's budget didn't affect the ratings, and were broadly in line with expectations, with a slower return to surplus signalled by Finance Minister Bill English.

The agency today said the government will need to find more savings to offset rising private sector indebtedness, and expects net general government debt will peak at about 24 percent of gross domestic product in 2017 before gradually declining, while the debt-servicing burden will remain moderate.

"We expect New Zealand will find it a bit harder to narrow its fiscal deficits during the next year or two due to low inflation and a slowdown in economic growth," S&P said. It expects growth to slow to 2.4 percent in the 2016 financial year, from 3 percent in 2015.

The sharp and sustained decline in dairy prices, New Zealand's largest export commodity, will weigh on growth, and flow through to weaker spending in some sectors and regions. S&P expects the current account deficit to widen to nearly 6 percent of GDP in 2016, as the country's falling terms of trade drag down the trade balance. A weaker kiwi dollar will help boost international competitiveness.

Earlier this month, Fonterra Cooperative Group's credit ratings were put on CreditWatch with negative implications by the ratings agency, which said there was a risk of weakness in the dairy exporter's financial metrics given its high debt levels at a low point in the global price cycle.

BusinessDesk.co.nz

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