Fitch leaves NZ credit rating outlook at negative

Fitch leaves NZ credit rating outlook at negative, external debt still a concern

By Jason Krupp

May 19 (BusinessDesk) - New Zealand's AA+ credit rating was kept on negative outlook by Fitch Ratings, which said the nation's high levels of external debt are still a concern.

Fitch said the government's Budget shows its commitment to aggressively tacking the widening budget deficit and returning state finances to surplus by 2015 through cuts to programmes like Working for Families, student loans, and further reductions in the state sector.

"The deficit was definitely not going to be brought back in line in this budget, that's more of a medium term issue, and they seem to have stuck to that track to bring it back to balance in that timeframe," Art Woo, a director at Fitch Sovereign Ratings, told BusinessDesk. "You could make the case that they are doing it a little quicker than expected."

New Zealand’s operating deficit is forecast to peak out at $16.7 billion in the year ending June 30, falling over the next three years before turning to a surplus of $1.3 billion in the June 2015 year. Core Crown expenses are forecast to rise 5.9% to $77.1 billion in the five years to 2015 while core revenue soars 34% to $76.4 million, the Treasury projections show.

Weekly government borrowing will drop from around $380 million a week at present to $100 million a week in the year ahead.

The comments from Fitch come after Standard & Poor's put out a statement saying it wouldn't change New Zealand's AA+ or negative outlook after the Budget.

Woo said the Budget, while a step in the right direction, did not get New Zealand out of the woods yet, with the high level of external debt remained a major concern for the ratings agency.

Government debt currently stands at about 20% of GDP and is expected to rise to just under 30% by the 2014/15 financial year, a level Fitch does not consider "onerous" when compared to New Zealand's external debt of $253 billion, or 132% of GDP, according to figures from the Reserve Bank.

"From a broader sovereign ratings perspective, New Zealand's net external finances remain a source of concern due to low private sector savings and that is really at the heart of the matter," Woo said. "Efforts to correct the domestic savings and investment imbalance are likely to remain a focus of the government in the medium-term."

Woo said overall he was happy with the government's budget, and said further changes to the country's credit rating would be unlikely before Fitch's annual sovereign ratings review in the second half of the year, barring exceptional circumstances.

(BusinessDesk)

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