Low public debt has rescued New Zealand's credit rating as ratings agencies increasingly lump private debt with public, Treasury's Whitehead says

By Alex Tarrrant

New Zealand’s low public debt has previously rescued the country from a credit rating downgrade with ratings agencies increasingly lumping private and public debt together when looking at sovereign ratings, Treasury Secretary John Whitehead says.

Government moves around the world to cover for private sector losses meant ratings agencies looked at national debt, rather than public and private debt separately.

New Zealand’s net international liabilities are 82% of GDP, with net public debt sitting at 20% of GDP, meaning most of the country’s debt was held by the private sector. However, rating agency Standard & Poor's last November placed the government's AA+ credit rating on negative outlook, suggesting a one in three chance of a downgrade in the next two years. The change in outlook was due to how S&P viewed private debt after government bailouts of the private sector in European countries like Ireland, it said.

On National Radio’s Nine to Noon programme on Wednesday, Whitehead said there needed to be concern about public debt levels, which were rising.

Treasury’s Debt Management Office said this month it would look to borrow up to NZ$20 billion this financial year to cover a NZ$17 billion budget deficit and prefund part next year’s shortfall.

“The key one [concern] though is that’s what’s really helped us through the really difficult times – having low government debt. It gives you that buffer for a global financial crisis, it gives you funds you can access for things like the dreadful earthquakes we’ve experienced in Christchurch,” Whitehead said.

“So we want to get that back as quickly as we can,” he said in reference to lowering government debt levels. The government is expected to announce budget surpluses would return earlier than 2016/17, which would allow it to start repaying debt.

It was right that New Zealand would be the envy of several countries, such as the troubled PIGS (Portugal, Ireland, Greece, Spain) countries  such in terms of government debt, Whitehead said.

“But we’re heading in the wrong direction and we need to turn that around. You cannot distinguish it [public debt] from the overall national debt, with the private sector stuff in there,” he said.

“Basically with the financial crisis, everyone now says, ‘actually there’s not that much difference between private and public debt, because the government is sometimes forced to take it over.”

New Zealand had a good record on its ability to repay debt.

“But what the ratings agencies have been saying to us for some time is, ‘actually it’s only been your lower public debt that’s rescued you from a downgrading’,” Whitehead said.