S&P Global Ratings says New Zealand’s credit rating is unlikely to shift if the Government takes on more debt.
Under its Budget Responsibility Rules, the Government promised to reduce net Crown Debt to 20% of GDP by 2021/22.
Finance Minister Grant Robertson’s commitment to those rules has come under pressure since the Government revealed it needs to reprioritise some of its spending at next month’s Budget to address issues with key public infrastructure.
Speaking to Interest.co.nz, S&P’s Primary New Zealand analyst Anthony Walker says sovereign debt levels make up just 10% of its overall credit rating.
In its most recent assessment, S&P affirmed its A-1+ ratings on New Zealand.
Moody’s rates New Zealand Aaa.
Walker says as New Zealand’s public debt levels are already so low, at roughly 23% of GDP, compared with its international peers, a 2% or 3% adjustment upwards would have very little impact on S&P's New Zealand sovereign rating because “there is ample room there at the moment.”
New Zealand GDP is $283 billion a year.
In fact, according to S&P’s assessment of the Government’s debt levels, which takes into consideration both central and local Government debt minus all liquid assets, net sovereign debt is sitting at just over 18% and is forecast to fall to 16% within the coming years.
Bagrie Economics chief economist Cameron Bagrie says the 20% debt reduction target is just “a number that’s been pulled out of the air.”
“Fiscal discipline is needed but it shouldn’t handicap policy decisions if they are good ones.”
He says the Government shouldn’t be afraid to loosen the purse strings and borrow a bit more if it is for sound economic reasons.
The argument for the Government borrowing more money to fund infrastructure projects has largely been made on the basis that with global interest rates so low, taking on debt is cheap.
After calling the Government’s Budget Responsibility Rules a “fiscal straitjacket” in February, Economist Shamubeel Eaqub said “…you’re a fiscal idiot if you don’t borrow money when interest rates are at the lowest level in a century.”
Robertson sticking to his guns
Robertson has maintained that the Government’s low debt level puts it in a better position to deal with an internal, or external economic shock.
The lower the debt level, Robertson says, the easier it will be to borrow money in the future in the event of a shock.
Despite Walker’s comments, the Finance Minister is refusing to budge.
He says the Government has “significant resources” at its disposal come Budget day to handle the infrastructure issues the Prime Minister outlined earlier in the week.
“We think it’s an important part of showing New Zealanders that we can be responsible with our finances while, at the same time, making the spending and the investments that are necessary.”
He says the Government won’t break its rules as it’s something both Labour and the Greens campaigned on.