NZ 'wealthy and resilient' says S&P, Government plan will keep debt in check

Wednesday, 31 January 2018

Ratings agency Standard & Poors has described New Zealand as 'wealthy and resilient', forecasting continued growth under the new Government's 'expansionary' plan.

One of the world's leading credit ratings agencies says the new Government's higher spending plans are unlikely to hurt New Zealand's finances.

On Tuesday evening Standard & Poors reaffirmed its existing high-level sovereign rating for New Zealand, which is AA when borrowing in foreign currency, and AA+ in local currency.

Finance Minister Grant Robertson has said the S&P statement 'gives a tick to the policy agenda' he outlined in December.

The ratings are not far below AAA, the highest available, meaning those lending to the New Zealand Government should have a high degree of confidence the money will be paid back as agreed.

'The economy is wealthy and resilient, reflecting decades of structural reforms.'

S&P said the factors driving the New Zealand economy were changing, with Government spending likely to play a larger role in the coming years.

While the announcement simply restates the previous position of the New York-based agency, the news comes after the new Labour-led Government outlined its fiscal plans for the coming years in December, meaning greater than usual scrutiny of the Crown accounts and Treasury projections.

S&P said it had incorporated the new Government's 'more expansionary' plans into its forecasts, which now has New Zealand growing at an average rate of 2.8 per cent each year over the next three years.

Accounting for continued growth in population, the economy will expand at 1.4 per cent per capita until 2020.

For the new Government, the announcement effectively endorses its plan, with net debt forecast to continue to climb, but at a rate much slower than the economy is expanding, meaning in percentage terms it falls slowly.

'Our ratings reflect solid fiscal performance and our expectation that higher government spending will not materially weaken the country's fiscal profile,' S&P said.

'New spending measures, including more generous welfare, education, and housing policies, are partly funded through the cancellation of the previous Government's proposed personal income tax cuts.

'As such, we do not expect the measures to materially affect the Government's fiscal position,' S&P said, adding that the former National Government had made 'substantial' progress in improving the Crown accounts following the global financial crisis and Canterbury earthquakes.

Finance Minister Grant Robertson welcomed the S&P statement.

'This decision effectively gives a tick to the policy agenda outlined in the Government's Budget policy statement in December, which confirmed our commitment to the budget responsibility rules, together with the fiscal forecasts presented in the half year economic and fiscal update,' Robertson said.

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