I did an earlier posting on Credit Rating Agencies explaining who they are and how they work. The table right (from the Parliamentary Monthly Economic Review) shows the three credit rating agencies and the current rating that New Zealand has as an economy.
It wasn’t until 1977 the New Zealand was actually rated by S&P and Moddy’s – Fitch came into the picture in 2002. You can see from the table that S&P reviewed New Zealand in November 2010 and while maintaining its rating at AA+, they changed the outlook from stale to negative. Fitch also gave NZ the same rating. This means that there is a higher chance of a downgrading which would mean higher interest costs to the government.
Standard and Poor’s raised concerns around the level of New Zealand’s external imbalances, and the weakening of fiscal flexibility for their change in outlook. The
negative outlook on Fitch Ratings’ credit rating for New Zealand is also based on the economy’s imbalances, with the level of the country’s current account deficit and international debt being mentioned.
Following the Christchurch earthquake in February 2011, Moody’s Investor Services made an announcement that they saw no reason to reconsider their Aaa credit rating for New Zealand, although they noted that it would likely “result in another one-time rise in government debt”. The credit rating agency noted that New Zealand government debt levels were below the median for other Aaa-rated governments globally. The Agency stated that it would wait for a fuller assessment of the impact on government debt, when the 2011 Budget is presented.
What does this mean for New Zealand?
The 2011 budget will no doubt assure credit rating agencies that a downgrade is unnecessary and therefore Bill English will provide little fiscal stimulus. In a pre-budget presentation English hinted at $1 billion of new spending mainly in health and education, but this will be “substantially offset” by cuts in other, lower priority, areas.