Credit ratings news today reflects global concern about foreign debt in the current world economic environment, Finance Minister Bill English says.
Ratings agencies Fitch and Standard and Poor’s today confirmed they had downgraded New Zealand’s long-term foreign currency rating to AA with a stable outlook from AA+ with a negative outlook.
New Zealand retains the highest possible AAA rating, with a stable outlook, with Moody’s.
The agencies acknowledge that the Government has made progress in getting its own deficits and debt under control, despite the global financial crisis and substantial extra cost of the Canterbury earthquakes, Mr English says.
“Since we were elected nearly three years ago, this Government has focused on managing New Zealand through the Global Financial Crisis and starting to reduce our single biggest economic vulnerability – namely, our longstanding reliance on foreign debt.
“Having inherited forecasts of permanent deficits and debt spiralling out of control, we’ve set a path back to surplus when most countries will still be in deficit and borrowing.
“New Zealand’s private savings have started to increase and as a result we have started to reduce our total external debt. But it still remains high.
“Figures out yesterday show New Zealand’s net international liabilities were 70% of GDP in the year to June – down from a peak of almost 86% two years ago and Budget 2009 forecasts of more than 100%.
“Compared to other countries, New Zealand has come through the recession reasonably well. We’re one of only 19 countries still rated AAA by Moody’s and we’re now the only highly-rated country with a two notch gap between our ratings with Moody’s and Standard and Poor’s.
“This reflects our unusual position of having relatively low public debt, but large private sector external debt, built up over several decades.”
Recent volatility on global financial markets highlights how the international environment has changed, Mr English says.
“We are not immune to the global backdrop. In particular, investors are now reassessing their appetite for debt and credit ratings agencies are taking a tougher stance. When it comes to debt, the global market goalposts have changed.
“The ratings news today reinforces the need for the Government to continue with its clear and balanced plan to get on top of that debt,” Mr English says. “That involves returning to surplus and exporting more to the rest of the world.
“By comparison, our political opponents to the left, who wanted a big expensive fiscal expansion during the recession, are still promising to borrow more, spend more and tax more. In the current environment, that’s irresponsible and would make a challenging situation even worse.
“And those to the right of us are calling for radical spending cuts that would disproportionately affect the most vulnerable New Zealanders, cut growth and cost jobs.
“We are following a balanced economic plan that is right for New Zealand.”