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Fitch Ratings Gives NZ’s Fiscal Management A Tick

27 March 2002

Finance Minister Michael Cullen today welcomed the healthy credit ratings given by British-owned rating agency, Fitch Ratings, saying they represented a vote of confidence in the government’s economic and fiscal management.

Fitch is on a par with international ratings agencies, Standard and Poors and Moodys.

Fitch has rated New Zealand AA for long term foreign currency and AAA for long term local currency ratings and has put us on a stable outlook.

“It notes that we have among the strongest public finances of any country Fitch rates and that public debt levels have more than halved since 1993. It also compliments us on our “undisputed reputation for liberalised markets and policy transparency” stating that it is “largely unmatched among rated sovereigns.”

“And, although it expresses some concern about the high level of external debt, it notes that this is “almost entirely attributable to the private sector and to a large degree reflects the internationalisation of New Zealand’s economy.

“This represents a solid endorsement by anyone’s definition,” Dr Cullen said.

Contact: Patricia Herbert [senior press secretary] 471-9412, 021-270-9013,


Fitch Ratings–London/Brisbane–27 March 2002: Fitch Ratings, the international rating agency, has today assigned ‘AA’ Long-term foreign currency and ‘AAA’ Long-term local currency ratings to New Zealand. A Short-term rating of ‘F1’ has also been assigned. The Outlook on New Zealand’s international credit ratings is Stable.

New Zealand’s credit ratings are underpinned by amongst the strongest public finances of any country rated by Fitch. On the back of consistent budget surpluses, public debt has fallen from more than 70% of GDP in 1993 to around 31%. Although Fitch does not expect public debt to decline from current levels, given the demand for improved public services and the partial pre-financing of a Superannuation Trust to meet future state pension liabilities, a modest rise in public debt would not imperil the sustainability of public finances. The strength of public finances is reflected in the ‘AAA’ international local currency rating.

Economic and policy reform since the mid-1980s has conferred substantial benefits but the jury is still out as to whether the sustainable rate of economic growth has shifted to a higher level. Nonetheless, New Zealand enjoys an undisputed reputation for liberalised markets and policy transparency that is largely unmatched among rated sovereigns. The main achievement of this reform programme has been a sustained period of macro-economic stability. The past decade has witnessed annual average inflation of less than 2%, falling unemployment and recurrent budget surpluses. Macro-economic stability and supply side flexibility have made the New Zealand economy significantly more resilient to external shocks, as demonstrated by the experience during the Asia crisis of 1997/1998 and the recent global economic downturn. New Zealand is also well placed to benefit from the anticipated global economic recovery in the second half of the year, and the economy is expected to expand by around 3% next year.

New Zealand’s foreign currency rating is, however, constrained by high external indebtedness. At 166% of current account receipts, net external debt is amongst the highest of any OECD country. Fitch recognises that this is almost entirely attributable to the private sector and to a large degree reflects the internationalisation of New Zealand’s economy. Nevertheless, it also reflects a relatively low domestic saving rate, is a contributory factor in persistent current account deficits, and renders New Zealand potentially vulnerable to shifts in foreign investor sentiment and global liquidity. The 40% decline in the value of the New Zealand dollar against the US dollar since 1997 is, arguably, evidence of these weaknesses. While Fitch’s concerns about the high level of external debt are largely mitigated by a sound banking system, a strong and transparent policy framework, as well as rigorous and sophisticated culture of risk management in the private sector, it nonetheless does constrain New Zealand’s international credit standing.

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