Global credit ratings agency Standard and Poor's has affirmed New Zealand's AA+ long term credit rating and said the outlook was stable, given the government's strong balance sheet and the strength of its core banking system. Even a change of government was unlikely to damage the nation's solid fiscal position, S&P said. Although it noted that a spread of financial problems from the finance company sector to the banking system would create a risk for the rating, although this was unlikely.

Here is the full statement.

Standard & Poor's Ratings Services said today that it had affirmed its "˜AA+/A-1+' foreign-currency credit rating on New Zealand. The outlook is stable. The ratings reflect the sovereign's strong fiscal flexibility, political stability, and flexible and resilient economy. "They also take into account the challenges New Zealand faces as a small, open economy with a high level of external debt and weak external liquidity," said Kyran Curry, of S&P's Sovereign and International Public Finance Ratings group. S&P also affirmed the sovereign's AAA/Stable/A-1 local-currency ratings. A fiscal strategy to build up financial assets and lower debt has left the central government in a net-creditor position. Personal tax cuts and higher spending on health and education programs will lead to modest deficits over the next few years. A weakening economy may also pressure the government's fiscal position; however, ongoing fiscal discipline is likely to remain the norm, even if there is a change of government at the upcoming election. New Zealand's current account deficits and high external debt leave the economy vulnerable to external shocks. The country's external financing needs are among the highest of any rated sovereign. Furthermore, the current account deficit is expected to exceed 7% of GDP annually over the next few years, reflecting a negative goods and services trade balance, but mainly the cost of servicing New Zealand's large negative net international investment position. While New Zealand's high net external indebtedness leaves the banking system very reliant on non-resident funding, it remains profitable, adequately capitalized, and demonstrates good asset quality by international standards. "The stable outlook reflects our expectation that New Zealand will maintain a strong fiscal position and robust financial sector," Mr. Curry said. The ratings would be at risk in the unlikely event that the current problems experienced by the non-systemically important non-bank financial institutions sector were to affect the banking sector. The ongoing credit quality of the major Australian banks will also be relevant to the New Zealand sovereign ratings given their ownership of the major New Zealand banks, which in turn fund New Zealand's external financing needs. An upgrade of the foreign currency rating to "˜AAA' would require a significant and sustained improvement in New Zealand's external position over many years.

Have your say. What are the risks to New Zealand's credit rating? Can S&P be trusted, given its involvement in giving AAA ratings to sub-prime debt in the United States? Is it being too relaxed about our high bank indebtedness? Is being too relaxed about our banking system?