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Credit rating news reflects decade of excesses

Hon Bill English

Minister of Finance

13 January 2009 Media Statement

Credit rating news reflects decade of excesses

News that Standard and Poor’s has placed a negative outlook on New Zealand’s external credit rating vindicates the urgency with which the Government is implementing its economic plan, Finance Minister Bill English said today.

“While New Zealand’s credit rating remains very high, the position is not as comfortable as we would like,” Mr English said.

“Complacent policies and ill disciplined spending in recent years have increased New Zealand’s vulnerability to the world recession. We have inherited an economy in recession, a large current account deficit, and sharply deteriorating government finances.

“These are the most challenging economic conditions a New Zealand government has had to face in a long time.”

Standard and Poor’s today affirmed its AA+ foreign currency and AAA local currency long-term debt ratings for New Zealand. The outlook for the foreign currency rating was revised to negative from stable.

This followed similar outlook changes for Spain, Ireland and Greece over the past few days. The New York-based ratings agency noted the Government’s low debt burden and commitment to keeping inflation low. However, it also noted the large current account deficit and projected ongoing fiscal deficits over the next few years.

“In our view, while the current account deficit is large and has been growing, it is likely to narrow somewhat in the next few years. In the meantime, the government is committed to the kind of fiscal policy consolidation that Standard and Poor’s has referred to.

“In that regard, any calls for further fiscal stimulus need to be weighed up against the consequences of taking on further debt.

“This government will also ensure that current public spending is directed to the best possible use, funding high quality public services and leaving productive assets rather than unproductive debt for future generations.”

The government remained on track with its action plan for its first 100 days in office and was acting swiftly and decisively to build a higher growth economy over the medium to long term.

“Let there be no doubt that this government is resolved to running responsible fiscal policy and building an internationally competitive economy, in which New Zealanders enjoy higher incomes and greater financial security,” Mr English said.

ENDS

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