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Rating agency Moody's comfortable with NZ govt debt; Says "highly likely" levels will remain on stronger side of Aaa rating range

Rating agency Moody's comfortable with NZ govt debt; Says "highly likely" levels will remain on stronger side of Aaa rating range

Ratings agency Moody's appears comfortable with the New Zealand government's current and forecast debt levels, saying it is "highly likely" levels will remain on the stronger side of its Aaa sovereign credit rating range.

However Moody's gave a small warning about New Zealand's lack of diversity in the economy and noted the potential risks from the country's reliance on offshore funding. 

The comments came in a report on sovereigns rated Aaa by Moody's, which also assessed the US, UK, France, Germany, Australia and Singapore. The comments should rest well with the New Zealand Debt Management Office, which is seeking to raise an average NZ$300 million a week from international financial markets to fund the government's budget commitments.

'New Zealand's govt debt levels favourable'

Despite a significant worsening trend, New Zealand’s government debt levels still compared favourably with the median levels of other Aaa-rated sovereigns and were expected to continue to do so, Moody's said in the report.

"From a low point of 26% of GDP just before the economy entered a prolonged, but mild, recession, the ratio of gross general government debt to GDP has risen to over 40% and will rise somewhat further over the next few years," Moody's said.

"The central government’s net debt, which is the government’s policy target, is projected to rise from a low of about 6% of GDP in 2008 to nearly 30% in 2015, when it will peak and begin declining. The long-term goal of fiscal policy is to reduce this ratio to under 20%," it said.

"These projections represent a small deterioration from those included in the last budget, driven by the effects of the costs of the 2010 Canterbury earthquake, other one-off factors, and expectations of somewhat lower nominal GDP growth than earlier. Nonetheless, New Zealand’s general government debt levels, even at their projected peak levels, are well below the median for Aaa-rated countries, both as a percent of GDP and as a percent of government revenues," it said.

In its December Half Year Economic and Fiscal Update, the New Zealand Treasury forecast net government debt to rise to a peak of 28.5% of GDP in 2015. However Treasury's downside scenario for the economy projected net debt could approach 40% in five year's time if economic growth did not recover as expected.

Following the half year update Prime Minister John Key said New Zealand's government debt would not worry ratings agencies until net debt hit 30% of GDP. "The ratings agencies tell us ‘look if your debt is under 30%, you’re of no concern to them, if it’s between 30-60% they think it might hold back growth a little bit, but again of no major concern, anywhere near 100% then you really get their attention," Key said before ChristmasIn other comments Key said New Zealanders should not panic about the government's fiscal situation.

'Strong banking system helps'

New Zealand’s banking system had no significant problems as a result of the global financial crisis, although access to offshore funding was a potential risk that did not materialise except for a brief period, Moody's said in the report.

"The strength of the banking system, together with the strength of the Australian parents of the largest NZ banks, indicates that the contingent liability to the government’s balance sheet from this source is small. Therefore, even with some further slippage in government debt ratios coming from slower growth or other one-time shocks, it appears highly likely that these ratios will remain within the stronger side of the Aaa range," it said.

New Zealand's Finance Minister Bill English has spoken before about his worries the country's funding pipeline would be turned off in the case of a sovereign crisis in Europe. "We learnt from 2008 that we have one cash pipeline coming in here, which is the Australian banks borrowing essentially in European and American financial markets," English said in November.

That pipeline could shut, English said, and it did. "It shut down for a number of months in 2008 and these people are getting grumpier, they’re not settling down."

'Household debt hurting growth'

The outlook for economic growth was somewhat constrained by household debt levels and developments in the property market, Moody's said in the report.

"In addition, inflation is also likely to be lower as a result of slower real growth, and nominal growth will also not be as high as earlier forecast. Thus, the impact of growth on government revenues will be felt during the coming few years," Moody's said. Weaker growth and inflation expectations have led Westpac, and more recently ASB, economicts to pick the Reserve Bank of New Zealand will not begin to raise the Official Cash Rate until September this year.

"New Zealand’s economic strength is classified as “High” rather than “Very High” in Moody’s sovereign rating methodology. This is because of the relative lack of diversity in the economy. Although high dairy prices are currently a source of strength, the somewhat weaker growth trend going forward confirms our assessment of the country’s economic strength," Moody's said.

'Likely to stay Aaa'

Overall, the path toward reaching the government’s target of net debt of less than 20% of GDP had been lengthened by slower-than-expected nominal growth and the effect of one-time events such as the Canterbury earthquake in 2010, it said in the report.

"Nonetheless, the central government (“Core Crown”) operating deficit is forecast by the government to peak in at 4.5% of GDP in the current fiscal year and to return to a small surplus in the 2013-14 fiscal year. The government hopes to keep expenditure growth lower than the (downwardly revised) nominal GDP growth in the next several years, with the ratio of expenditure to GDP falling from 34.9% this year to around 32% in 2013-14," Moody's said.

"With revenue rising a bit more rapidly than nominal GDP, the result is a return to an operating surplus. Another external shock that affected economic growth could, of course, derail the path toward fiscal consolidation, but the baseline indicates that New Zealand’s fiscal position will continue to support its Aaa rating," it said.

Eyes on NZ's private sector debt

Despite the ratings agencies seeming comfortable with the New Zealand government's debt, another agency, Standard and Poor's, last week warned on New Zealand's "high risk" economic imbalances, partly due to high levels of private sector debt.

"We assess New Zealand's economic imbalances as "high risk" because of its persistently high current account deficits, high external debt to current account receipts of about 200%, increasing level of private sector debt, and occasional periods of rapid growth in house and equity prices. These risks are, in our view, partly mitigated by effective hedging of external debt. We also note that FDI funds a sizable part of the current account deficit," S&P said.

However a stable, transparent policy environment, strong institutions, and sound public finances helped support New Zealand's economic stability, Standard & Poor's said.

In November S&P placed New Zealand's AA+ credit rating on negative outlook, suggesting a 30% chance of a downgrade in the next two years. However Key said he thought the move stemmed from the private sector's indebtedness and S&P's reassessment of risk following the Irish debt crisis.

Treasury Secretary John Whitehead last year warned on the country's overall debt levels, saying the S&P move showed financial markets wanted to see an improvement in the nation's debt levels.

"Our net foreign debt position, as a country, is one of the largest in the developed world, at nearly 90% of GDP at last count. And the company we are keeping in this respect may ring some alarm bells," Whitehead said in November.

"Many countries with similar levels of external indebtedness to us are now experiencing severe fiscal and economic stress," he said.

"While New Zealand’s low starting level of government debt appears to be an important differentiating feature, our government debt is rising. This trend, and the vulnerability to another external shock associated with our high national level of indebtedness, suggests that action is warranted," Whitehead said.

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44 Comments

that is,indeed, good news for our country..i suspect that having an ex-money man like johnny key in charge of the country helps our ratings with S&P....not sure how we'd be viewed if Queen Helen and the other boys were still pulling the levers?

Good that we was kept in the dark over the "pipeline cut""!How nice of them-still not told of the bank that had run on deposits though?

I gave up reading fiction a few years back. 

Actually...this is not good news....it allows English to back away from doing anything other than carry on with the spin...some pressure just might have forced some real action.

I suspected you didn't have any toys to play when you was little!

Got to hand it to you Wolly you can make a negative out of a positive, you are one of the best at spinning a line

Oh come on muzza...that conclusion is so obvious...we were about to face a budget aimed at making a difference because the Cabinet had been warned by S&P...then along comes this other bloody lot to say hey it's ok bro..carry on up the creek...we don't give a shite....so what do you think the Beehive chitchat will be?....dam sure it will not be "wee gotta pull our finger out".......

Wolly, this country at this time is in need of people like yourself....It's just pure evil for anyone to think positively!

The moa honesty the better.

Suppose  you reckon the government put them up to writing a favourable report

Didn't these guys sign off on subprime CDO's as AAA rated ? .......... Why does anybody listen to the ratings agencies , after that .

............. do we need these fools to tell us the state of borrowing , by our own bunch of fat-heads in Wellington  ?

You said it GBH is simply shows the mockery that is the financial system when you have broken corrupt agencies such as this who were at the very centre of the meltdown, yet get away untarred, and are still pumping out the rubbish..

I'm with Wolly, this is just going to get let the govt off the hook a suspect for the time being. Bill's comments about getting grumpier are simply the words of a simpleton...hillarious if they had not come from a "honorable member"

Hey LloydM1 : I must re-read that piece , because I'd gotten the impression that it was the silly sods who loaned  us the  bucket loads of cheap munny , that were now " grumpy " ..

...... Oh bugger me , what a turn up , if we screw the Aussies by reneging on our mortgage debt to their banks ..............

......... We wouldn't , would we ............ tee hee heeeeeeeeeeee ! ....... Dude , that'd be " under-arm " , and civilsed folk don't do shit  like that , ........... do they ?

Course they do not GHB - LOL. What is very clear is that the financial sytems seem comfortable to have one of their own at the helm of NZ, and I would imagine that this is playing some part in the dros being rolled out.

Well LloydM1 , you do the sums  ............. 4 million collectively have a debt of $ 160 billion ( give or take ) ............ And Moodys tell us that is high risk , unsustainable , a danger to all things furry , great & small ..............

......... But 122 arse-wipes in parliament owe $ 15 billion or so , and that's okey diddily dokily . JK's at the helm , he's our man , no problem .............

Now here's the bottom line : I trust the 4 million to be thrifty , hard working and diligent , to get their debt down . ....... But they  understand  the street level commonsense approach to daily life .........They can get jobs . Establish businesses . Milk cows .

...... who's gonna bail out the 122 clowns in parliament , of the debt that they're racking up , hand-over-fist ? 

Sounds a bit like the bugle call before the charge.  With another silly season coming up,  the pols want to reassure hand-wringers all is well before serving up election pork.  In the great quid pro quo of raising a campaign warchest, I'll be interested in what form the largesse will take to get New Zealand rich listers to open their wallets.

My guess would be something for the real estate industry. 

 

 "these people are getting grumpier, they’re not settling down"

You tell it like it is Bill...like 2 years olds the lot of them...always wanting more.

We sure are lucky to have Bill in charge...."Nanny English" !

i wonder if bob jones could be interested in bringing back the new zealand party?

 

 

Wolly knows his compound interest ....

Guy's these dudes are no smarter the S & P.

Same old same old - watching the wake while steering the ship.

Just do some projections as to foreign liabilities under current policy settings.

Use treasury forecasts of  $12 B declining to 0 in 2016 .. that's another ~ $ 40 B

Add on structural current account deficit to our current starting figure  $ 252 B and BINGO  we have a mere $ 300 B on the card.

That's a 1/3 rd of a Trillion - Not chump change in anyones language - even Pollies !

Debt is debt - Gov't or private but has the same redeeming features. Those totally unreasonable pricks will want it back at some stage and they also want their interest dam them !

While we borrow more to pay the interest on the last borrowings ( used to be called a Ponzi ) - Now the kindness of strangers - we are headed for the abyss.

We HAVE to run current account surplus by definition to stop this rot and the probability of this happening in the medium term ( Given we never have for ~ 40 years ) is near zero at current FX rates.

The Reserve Bank Act policy horse is dead and until we get off that mule nothing will change.

Interestingly Labor and Winny the Pooh are on this new steed.

Now it's just borrowed money on borrowed time.

Can't say when it will end - But end it will and there will be a gnashing of teeth and wailing like we have not seen.

Yes you have heard all this before - but that doesn't make it wrong.

Be like Confucius - Think for yourselves and  study the outside world relentlessly

 

 

 

 

 

Not sure which is worse JB...compound interest or compound idiots....yes I do...it's the govt...no contest to be honest.

 

Thank god for good government   .....

Where we would be if individuals just went and just cut down any old gorse bush.  Shocking environmental depravity  .. Has to be stopped at once.

This is why we'll all end up in the debtors prison ...

 

Irene Van Dyk  Out of the public eye, this is just one of the private battles the family has faced. Christie and Irene's lives were turned upside down earlier this year by what they thought was a simple decision to clear gorse from their 18-acre, erosion-prone Upper Hutt property.  .

Throughout their 17-year marriage, the couple has weathered many storms, but their battle with Wellington Regional Council was a hurricane which tore up their lives.

Costly mistake

Financially it's almost crippled them – they've had to take out a $130,000 mortgage on their home to pay fines, lawyers and remedial costs. They're still waiting to get the all-clear from the council. Emotionally it has taken its toll on Irene, and physically it's wreaked havoc on Christie's health.

Shit JB...gorse is a protected species in wgtn...the council has every right to demand fees for every gorse bush removed...how else do you expect them to be able to afford so many bums on seats making up ways to charge people fees.

Yeah, the Council should have done nothing to prevent the hillside washing away during the next heavy rain event. Shame on the Council for trying to stop the van Dyk's neighbours going for an unintended mudslide.

 

"The council has alleged that soil on erosion-prone land was disturbed by the clearing of more than 2.5 hectares of gorse. Streams on the property were affected after soil and other material were dumped in them.

The van Dyks were reported for clearing gorse from their State Highway 2 property in Kaitoke, Upper Hutt, on November 4. Bulldozers were seen being used for the clearing.

A report to the Greater Wellington regional council said the work caused "significant soil disturbance on erosion-prone land, discharges of land to two watercourses on the property and deposition in the beds of those streams".

The land was prone to slips because no vegetation was holding the soil in place, putting the highway at risk. The van Dyks were given abatement notices, fined $750 for breaching an abatement, and ordered to do remedial work." stuff.co

So what's the outcome Gingerman...the Gorse is left by all and then come the fire in the hot nor west summer gale...wooooosh. Oh sorry ....it's ok if you pay the fees to get the rubber stamp from the rubber stamp office and pay some more fees for the official visits from the official rubber stamp office to measure  and look....look and measure.

The council is correct . The gorse was holding the soil , providing some erosion protection . The Van Dykes would've been better to underplant the gorse with more desirable plant species , and then to gradually cut out or poison the gorse , as the under-storey establishes . ...........A common practice amongst exotic tree plantations .

....... Sorry Irene , an own goal , hon.

Wolly,

I hear they have a bit of silt run off in QLD - about the size of France & Germany.

Do you think the Wn Council policies would have prevented this.

More gorse ?

I thought that silt laden run off was what formed flood plains - the most fertile areas on earth. Nothing to worry about - being going on for billions of years.

Will continue as long as we get heavy rain events irrespective of councils - so let's just save their salaries and relax and focus on paying off our debts.

No better example than the Gatton area below Toowoomba.

Some of the most fertile land on earth. Should be encouraged,

 

Yes JB ( 5:47 p.m. ) : Sit on a beach in the tropics , bide your time with the local delicacies ...... and food , too . Watch the slow ship-wreck as the NZ-Debtanic blunders into the icey waters of default .......

....... Sad ! Very sad for a loyal Kiwi ...

...... But I'll be there , with a fat bag full of pesos to pick up the pieces , when it all unravels ........

.... And if Goofy / Klinger / & Cunny win the election this year , that unravelling will be sooner , rather than later .

Gummy,

Interesting to see us priced third cab in the rank below those two pillars of probity - Greece and Portugal.  Refer FT  Bond Rates.  Ahead of Spain !!

How does this tally with Moody's report.

Guess who we should really fear - Moody's or the bond market ?

Portugal's now in ECB flop house - couldn't afford the Heroin debt at  3 % so now on Methadone at 6.7 % while we just cut back a little on the dosage.

Will shortly join Greece in permanent  rehab.

Then the reef fish will have a nibble on NZ Govt debt and maybe not like what they see - and being reef fish they will turn in an instant - we don't know when - then watch the action.

Cutting us a bit of slack at the moment - Canterbury, British etc

We'll then be crying on the IMF's door - can't afford these interest rates etc etc Market doesn't understand the fundamental strength of our economy - Yeh Right !

I hate to be boring - but it's now just a timing issue.

 

 thoughts a mate sent me.....

"Housing weighs down the recovery," writes Mort Zuckerman in the FT. There are 5.5 million households with mortgages that are at least 20% higher than their houses' value, he says. Delinquencies are still rising. The loss so far is greater than in the Great Depression, adds Zillow. And the Case-Shiller numbers show it getting worse.

But let's turn to murder for a minute...

"Obama says polarized nation needs healing," says a headline at Yahoo! News.

A guy goes off his head and starts shooting people in Arizona. The whole nation needs "healing," says the president.

The media is full of argument on the subject. Are Rush Limbaugh and Sarah Palin to blame? Strident political rhetoric? Loose gun laws?

Palin says she is a victim of "blood libel." The New York Times refers to a "climate of hate."

Why are people so angry at one another anyway?

Relax... Our theory explains it. When people are creating wealth they have little reason to get mad at one another. Sure, someone takes a shot at a Congressman from time to time, but it tends to be a personal matter. And the politico probably has it coming.

Not so in the degenerate phase. When people try to live at each other's expense, it naturally gives rise to widespread rivalry and resentment. The poor want food-stamps, welfare and unemployment comp. The rich want tax cuts and government contracts. The feds try to give everything to everybody - especially to their insider friends. Then, they go broke and everyone gets mad.

 

"The New Zealand Debt Management Office increased the amount of New Zealand government bonds it sold in a tender this week in response to strong demand - particularly from one overseas investor.

The office, which manages the Government's debt, sold $950 million of bonds at a tender on Thursday. It was the largest tender the office has held in decades.

NZDMO Treasurer Philip Combes said demand was so strong for New Zealand government bonds the office would consider revising the size of the bond programme for the year upward when the Budget is released.

The Government plans to sell $13.5 billion of bonds in the year to June 30 and it has already sold $9.25 billion of that total." herald

So according to the BS the bonds are being sold because demand for NZ debt is really strong....I'm off to join the Flat Earth Society.

 "Several beleaguered countries are stumbling from bad to worse under the weight of very high and potentially unsustainable debt.

EUROPEAN politicians and central bankers attempting to distance themselves from the rolling debt crises engulfing their neighbours have provided useful geographical clarifications.

Before succumbing to last year's inevitable bailout by the European Union and International Monetary Fund, the Irish government assured the world that Ireland was not Greece.

Portugal is now telling everyone it is neither Greece nor Ireland. Spain insists it is not Greece, Ireland or Portugal. Italy insists it is none of the above, as does Belgium, which also wants the world to know that it should not be confused with Italy." the age.com

Bill English wants the whole wide world to know NZ is not like the Piigs..no sireee.....doh

Wolly

Just one big purchaser   ....  probably the ECB trying to keep a lid on things knowing we are next.

If we went tits up - then it would definitely be Spain next , followed by Italy and so it continues.

The Bond market has it all worked out OK despite what  Moody's and S & P say.

Probably the smart thing to do as for the quantum dollars in Euro terms - it's not big numbers.

 

Be ready to run JB...A bond rout in europe will surely signal higher rates and no way can NZ avoid them. Bolly will have no option but to follow along like a good wee poodle. Much nashing of teeth in the property sector to come. Expect an exodus of builders etc to Queensland. It'll be goodbye to ChCh for them. Think of all the trades and of ten years aussie rebuild to come. Bloke would be foolish not to go. Which will do what to the regions in NZ!

I'm picking 011 will repeat 010 but with the bond trouble on top, so the fiscal mismanagement from wgtn is set to bring misery in the form of higher taxes charges and fees. Govt too gutless to take the austerity road to future surpluses. Labour would only waste the savings anyway.

It means recession conditions for a dam sight longer. By the time any light in the tunnel shows up, the front bench will be long gone. Key will have become bored with the 'game'.

To me the future of this economy points to the population starting to slip as the BBs cark it...massive property listings and little sign of demand. NZ is heading off to become a place to visit to see the foreign owned farms, the Whales, hot mud and do the Haka tour.

Selling the Chathams to Beijing on a 99 year lease as a naval base is looking better by the month.

 

Wolly.

Very sadly - my views are with you.

They will be able to write a definitive history of NZ one day on why attempting to borrow your way to prosperity doesn't work.

Never has - never will

Pollies love it as you say - they can then kick the tin down the road while they get all 4 trotters and snout into the trough - Read Pansy Wong  10 trips in  ~ 4 months  to China -  Husband researching his genealogy  all at taxpayers expense.

The Nat's had the dam gall to thank her in their latest circular for a great job !

Trying desperately not to offend anyone.

Finally reported by the powers that be  as an " Inadvertent trip " -  Yeh Right

Sort of thing we all do - you wake up in the am - Ooops Traveling to China

Benjamin Frankin had it right:

Good Government, Good Education, Innovation, Thrift and Hard work !

Perhaps we could try this approach

 

Time to re-form The New Zealand Company

Do countries ever escape their founding roots?

"The Shanghai stock exchange ...lost more than 14 per cent of its value last year ...The market has actually performed worse (than the)..S&P 500 and Britain's FTSE, since the global financial crisis.... Seeds of economic mayhem may have already been planted in the middle kingdom - we may just not have realised it yet."

http://www.smh.com.au/business/china-is-not-well-and-when-it-sneezes-we-will-catch-a-cold-20110114-19r5e.html

 

"The property market in Sydney was sizzling ...  when your columnist opted instead for... a place in Perth."

''Sure it's cheap, but its low yield and will remain cheap.''

and there it all is... in a nutshell. Home as an asset.

If it's viewed as an 'asset' it's not a 'home'. Homes are where people live and raise families, 'assets' are cold dead things which have nothing to do with lifestyle and family.

Take it you aren't an asset to anyone then, Lol

 Gotta help Bernard see the light....nice dream Bernard...govt borrowing billions on local market to keep welfare state afloat...weee problem shows up....where will the banks and others get their loot from if the govt has grabbed it all?

Overseas of course...but only so many covered bonds can be sold...sooner or later the market smells the dead rat of a property bubble economy with a fiscal hole and a taste for high living....the cost of borrowing shoots through the roof. Kabooooom goes the game.

There is no escape from the maze so long as govt spends more than it collects. Either spend less...collect more...or borrow to fill the hole and end up owing more.....

If govt is to sell bonds to me...they will have to be inflation adjusted(honestly)with no tax on that adjustment and pay me at least 4% nett of tax. Otherwise they can get stuffed,

Serious question here. What are the things we Kiwis (not the govt etc) spend most money on. I'm guessing property is a long way above everything else on the list, but maybe I'm wrong. The results of a quick 'n' dirty survey would be interesting.

O dear, what a sad state of affairs, you doomsters make feel like going down the gully and cutting my throat......but wait, what if you're wrong, there might be a beakon, or even a light, now there's a thought......na, now where did I hide the knife?

If you prefer not to think about the currently negative fundamentals then good luck to you and we hope everything works out okay. But pardon us for taking a few personal financial precautions. Not everyone walks the same paths.

If we 'gloomster' are wrong, then you and we shall be fine. If we are right, we shall be fine and you will be...what...Whichever way 'it' goes, we'll be fine. You may  have a 50/50 shot at survival, of all sorts.  'For-warned is for-armed';  ' Better to plan for the worst, and wish for the best'... there's lots of such advice out there.