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NZ credit ratings unaffected by government's 2015 budget

NZ credit ratings unaffected by government's 2015 budget

By Tina Morrison

May 21 (BusinessDesk) - New Zealand's credit ratings were unaffected by the government's 2015 budget, Standard & Poor's and Moody's Investors Service say.

S&P kept its AA foreign currency rating and its AA+ local currency rating, both with a stable outlook, while Moody's retained the country's Aaa rating with a stable outlook, the ratings agencies said in separate statements.

New Zealand's budget announced today detailed a four-year $3.2 billion reduction in the Crown’s operating balance compared with the half-year estimate, prompting Finance Minister Bill English to axe savings incentives to fund welfare priorities.

The operating balance excluding gains and losses is forecast to be a deficit of $684 million in the year ending June 30, slightly wider than the $572 million deficit projected in December, while the 2016 surplus is whittled back to $176 million from $565 million.

The latest budget projections are "broadly in line" with expectations, S&P analysts Craig Michaels and KimEng Tan said in a statement.

"While the budget contains some write-downs to revenue growth over the four years to June 2019 - due mainly to a weaker outlook for inflation and wages growth - the impact on government fiscal deficits is relatively modest. We still expect fiscal deficits to gradually narrow over the next few years, although rather than achieving a broadly balanced budget in fiscal 2017, the government now appears likely to achieve this a year or so later. We continue to expect the country's general government net debt to remain low."

S&P said its ratings reflect the country's economic resilience, fiscal and monetary policy flexibility, mature and stable public policy settings, and sound financial sector. However moderating these strengths are New Zealand's very high external imbalances.

Meanwhile, Moody's analyst Steven Hess said the budget supports the country's rating in that debt ratios will continue to decline over the medium term if budget projects are realized.

"New Zealand's government debt is low in comparison to other Aaa-rated sovereigns, and the further declines in debt ratios as presented in the budget indicate that its relative position is likely to improve," Hess said.

"New policy initiatives on the spending side were few in this budget, although increases in health and education expenditures continue the trend of recent years," he said. "There are no significant new revenue measures, in keeping with the government's policy of not increasing taxes. Control of expenditures remains the focus of fiscal policy in New Zealand."

Underpinning the improvement in the budget balances is the economic outlook, which, in comparison to other Aaa-rated sovereigns remains healthy, Hess said.

" After real GDP growth of around 3 percent recently, the government expects the rise to average 2.8 percent annually in the coming four years," he said. "GDP growth is supported by a relatively low interest rate environment at present, continued investment in housing in particular, and positive net immigration. Risks are related mainly to the global economic and fiscal conditions, particularly growth in China and Australia, which are New Zealand's main trading partners."

The New Zealand dollar recently traded at 73.23 US cents, from 73.06 cents immediately before the budget was released at 2pm.


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