Budget a success: S&P revises ratings outlook to 'stable'

Thursday 28th May 2009

The Budget gained immediate endorsement from the credit ratings agency Standard & Poor’s, which affirmed New Zealand's AA+ foreign currency rating barely two hours after Finance Minister Bill English delivered his Budget.

S&P also revised the outlook from negative to stable.

Prime Minister John Key had staked the Budget's reputation on its ability to stave off a downgrade.

S&P reached its conclusion as the government scrapped tax cuts scheduled over the next two years, suspended contributions to the New Zealand Super Fund, and capped new spending to prevent debt from spiraling out of control. S&P said the main risk to the ratings would be a significant weakening in the credit quality of the nation’s banking sector.

The New Zealand dollar gained 0.9% to 61.88 U.S. cents immediately after the announcement, and recently traded at 61.69 cents.

Moody’s Investor Services, a rival rating agency, also confirmed New Zealand's Aaa (stable outlook) New Zealand sovereign rating following the budget’s release. The government will aim to keep net debt under 40% in the near term, with an eye to reduce it to around 30% by “at least the early 2020s”, and a long term goal of around 20%.

“The measures announced in today’s budget will support stablisation in the government’s fiscal position over the medium term,” said S&P credit analyst Kyran Curry in a statement. “The successful delivery of this strategy - returning the operating position to surpluses over the cycle and maintaining low debt – is consistent with maintaining the AA+ foreign currency rating.”

The country’s rating was put on negative watch in January as the current account deficit ballooned to 8.9% of gross domestic product for the three months to Dec. 31. Since then, Prime Minister John Key and Finance Minister Bill English have asserted that the budget would first and foremost lay out a Crown debt reduction strategy to avoid a ratings downgrade.

The Treasury estimated that a reduction in the nation’s credit rating could cost as much as $600 million per year in added interest expenses.

S&P also revised the outlook to stable from negative for Housing New Zealand Corp., Housing NZ Ltd., New Plymouth District Council, Counties Manukau District Health Board, Auckland District Health Board, and Christchurch City Council.

Businesswire.co.nz

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