Hot on the heels of rival Fitch Ratings' downgrade of New Zealand's sovereign credit rating, Standard & Poor's has followed suit, saying the country’s fiscal position has been weakened by Christchurch earthquake-related spending pressures and fiscal stimulus to support growth.
S&P said it had cut its long-term foreign currency ratings on New Zealand to 'AA' from 'AA+' and its long-term local currency rating on New Zealand to ‘AA+’ from ‘AAA’. The short-term ratings are affirmed at ‘A-1+' and the outlook on the foreign and local currency ratings stable.
"The lowering of the foreign and local currency long-term ratings follows our assessment of the likelihood that New Zealand’s external position will deteriorate further at a time when the country’s fiscal settings have been weakened by earthquake-related spending pressures and fiscal stimulus to support growth," S&P Sovereign credit analyst Kyran Curry said.
He said the ratings reflect S&P's opinion on New Zealand's fiscal and monetary policy flexibility, economic resilience, public policy stability, and its sound financial sector.
"These strengths are moderated by New Zealand’s very high external imbalances, which are accompanied by high household and agriculture sector debt, dependence on commodity income, and emerging fiscal pressures associated with its aging population," added Curry.
“The stable outlook balances the stabilization we expect between the government's debt profile over the medium term and risks associated with the country's high external debt. We expect the New Zealand major banks’ credit profile to remain sound and for New Zealand to remain a core market for the banks’ Australian parents. We also consider the strength in government finances to be an important mitigating factor to the risks associated with the external position. ”
However, he said downward pressure on New Zealand’s ratings could re-emerge if the external position continues to deteriorate.
“Rising public savings will be an important component for keeping the country’s current account deficit in check. On the other hand, upward pressure on the ratings could eventually emerge if sustained current account surpluses, led by a stronger export performance and higher public savings, markedly reduced external debt.”
S&P's move comes after Fitch Ratings cut New Zealand's sovereign credit rating to AA from AA+ earlier today, saying it saw New Zealand's net foreign debt as higher than others with AA credit ratings and that New Zealand's structural imbalances were continuing to widen. See more here.
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