New Zealand credit rating 'stable' at AA+ despite change in government

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New Zealand has one of the lowest levels of official debt in the world. Photo: RNZ / Cole Eastham-Farrelly
Photo: RNZ / Cole Eastham-Farrelly

The change of government will have no impact on the country’s top level credit rating, according to a global agency.

S&P Global Ratings said the country’s AA+ rating, which was upgraded in 2021, reflected the government’s handling of the pandemic, low debt, discipline and economic growth, and there was no reason to change.

In a seminar on the credit outlook for New Zealand, S&P’s sovereign ratings director Martin Foo said the election of a National-led government would not make a material difference to the rating, given that Labour and National had broadly similar fiscal approaches.

“We are now looking to see if the new National-led government can truly rein in the fiscal deficit.

“This will be important for several reasons: One is to allow the debt burden to stabilise so that the country has some buffer for the next possible shock or crisis.

“The second reason (is) so that monetary and fiscal policy are not working at cross purposes to each other.”

He said the new government – whether or not it included New Zealand First – seemed aligned to “smaller government”.

Foo said official debt had risen recently, but New Zealand still had one of the lowest levels in the world among developed economies.

No water reform may sink council ratings

However, the picture for local government debt ratings would be more challenging if the new government proceeded to scrap Affordable Waters – the policy formerly called Three Waters, he said.

He said New Zealand local councils had high debt levels, which the Labour-government policy might have helped alleviate.

“The reforms could have been an escape valve for some the debt and now that National has threatened to repeal the laws, the question for us is, ‘What’s next?’ “

Foo said council credit ratings would come under pressure if they were forced to borrow more for water assets.

The S&P analysts expected modest annual growth of just over 2 percent for the next three years, but expected consumers to limit spending, businesses to be cautious about investment and feel pressure on their margins, while the lift in house prices would be gradual and modest.

They also picked banks’ credit losses and non-performing assets to increase putting pressure on their earnings, but did not expect major change arising from the Commerce Commission’s market study.