Finance Minister Bill English says S&P and Fitch downgrades of NZ "reflect global concerns about foreign debt"

Finance Minister Bill English says S&P and Fitch downgrades of NZ "reflect global concerns about foreign debt"

By Alex Tarrant

Finance Minister Bill English says the decision by Standard and Poor's and Fitch Ratings to cut New Zealand's sovereign credit rating by one notch to AA reflected global concern about foreign debt.

Prime Minister John Key later added the downgrades were "not at all" embarrassing for the government, which had been touting its relative economic strength in recent weeks as the mood grew darker in Europe and the US. Key said New Zealand should be careful but optimistic about its prospects, although a slower than expected Christchurch rebuild, or a rise in costs from the quakes, and a global double-dip recession would hurt further.

English said the agencies had acknowledged the government had made progress in getting its deficits and debt under control despite the Global Financial Crisis and and the Canterbury earthquakes.

The downgrades reinforced the need for the government to get on top of its debts and return to surplus.

“Since we were elected nearly three years ago, this Government has focused on managing New Zealand through the Global Financial Crisis and starting to reduce our single biggest economic vulnerability – namely, our longstanding reliance on foreign debt," English said in a statement.

“Having inherited forecasts of permanent deficits and debt spiralling out of control, we’ve set a path back to surplus when most countries will still be in deficit and borrowing. New Zealand’s private savings have started to increase and as a result we have started to reduce our total external debt. But it still remains high," he said.

English pointed to figures showing New Zealand’s net international liabilities were 70% of GDP in the year to June – down from a peak of almost 86% two years ago and Budget 2009 forecasts of more than 100%.

“Compared to other countries, New Zealand has come through the recession reasonably well. We’re one of only 19 countries still rated AAA by Moody’s and we’re now the only highly-rated country with a two notch gap between our ratings with Moody’s and Standard and Poor’s," he said.

See our earlier article on Fitch's downgrade.

See our earlier article on Standard and Poor's downgrade.

“This reflects our unusual position of having relatively low public debt, but large private sector external debt, built up over several decades.”

English said recent volatility on global financial markets highlighted how the international environment had changed.

“We are not immune to the global backdrop. In particular, investors are now reassessing their appetite for debt and credit ratings agencies are taking a tougher stance. When it comes to debt, the global market goalposts have changed," he said.

“The ratings news today reinforces the need for the Government to continue with its clear and balanced plan to get on top of that debt. That involves returning to surplus and exporting more to the rest of the world."

English later told a news conference he was sticking with his forecast for a surplus in the 2014/15 year and said that had the government cut spending by more in its budgets it would not have avoided these credit rating downgrades.

English attacks Labour

“By comparison, our political opponents to the left, who wanted a big expensive fiscal expansion during the recession, are still promising to borrow more, spend more and tax more. In the current environment, that’s irresponsible and would make a challenging situation even worse," English said.

“And those to the right of us are calling for radical spending cuts that would disproportionately affect the most vulnerable New Zealanders, cut growth and cost jobs," he said.

“We are following a balanced economic plan that is right for New Zealand.”

'Households won't return to debt-fuelled ways'

Given the focus on private sector debt, English said the government was asking households to do two things at one – pay down debt and save more. Incomes would need to rise, meaning economic growth was an important part of the equation.

“We’re still reasonably confident in the moderate economic growth that’s been forecast. A combination of continued growth in exports, which has actually exceeded expectations in the last 12 months, and the extra boost we’ll get from the Christchurch rebuild. Looking out over two or three years, those are both factors that we think remain in play,” he said.

English said the government was confident that the changes seen in household behaviour, where they were spending less and saving more, would remain, even as the economy started to grow again.

“The ratings agencies are forecasting fairly big current account deficits, so their view is that New Zealand households will revert back to where they were in 2005/06/07, back to their old habits. We don’t think that’s going to happen,” he said.

Events like today’s downgrades were a clear signal for households that debt was a risk. Households should also see the tightening up of government as a sign they were not going to get more transfers to boost their incomes.

The government was optimistic the current account deficit would not balloon back out. Standard & Poor’s said that any upward pressure on the rating would come if sustained current account surpluses, coupled with strong export growth and higher public savings, led to a markedly reduced external debt.

“If we can get to a position to where the current account runs somewhere around the rate of GDP growth, at least then you’re getting a stable net liability position,” English said.

“The problem here is we’re dealing with a history where it’s got consistently worse, and they’re just the grumpy bank manager looking at it and saying, well for the last 15 years you’ve got consistently worse, particularly the last 10, and we think you’re going to go back to that," he said.

“The first step in turning that around, which is a lengthy process is to get to where at least you stop growing the external debt. We’re getting close to that position, and then [if] New Zealanders continue their current shift in behaviour, if the government sticks to its surplus track and then tight government finances beyond that so it can repay debt, then we’ll be in a position where we’ll be reducing those external liabilities.”

We're linked to Asia

On the export side of the ledger, following IMF downgrades of most of New Zealand’s trading partner growth, English was confident New Zealand’s links to Asia would help as the US and Europe slowed.

The downturn in the US and Europe would have some effect on Asian economies, but the government was confident New Zealand’s position was such that it would be a bit less affected by it than its trading partners.

The falling New Zealand dollar would hopefully offset falls in commodity prices, and the outlook for particularly the dairy, meat and wool sectors was still strong.

“On the Asian economies, there are some question marks over growth there, but they tend to be focussed on the commodities that are used in their big investment-driven growth. That’s more copper, iron ore, coal, whereas it’s less clear that there’s a negative outlook for food, which is our basket," English said.

The government's focus was on improving competitiveness in New Zealand, by trying to drive jobs from the public sector to exporting sectors and improving infrastructure.

'Be careful but optimistic'

Prime Minister John Key said the downgrade reflected the very weak position of Europe and the US, which was worrying the rating agencies which had now downgraded eight developed countries.

“Secondly, they are still expressing concerns about our private sector debt, and those levels are high. The good news is we are starting to get on top as a country of that private sector debt. The third factor that they’re worried about is that so much of that private sector debt is owed to foreigners. That position’s not new. That private sector debt was built up over the period of 2003 to 2008," Key said.

The good news part of the story was the ratings agencies had reaffirmed the government was on the right track, its books were in good shape, and that its local country credit rating was still solid.

Key said he was “not at all” embarrassed by the downgrades, given his comments in recent weeks that the New Zealand economy was relatively strong compared to the Northern Hemisphere countries being downgraded.

“The New Zealand economy is quite strong. The issue here is the international environment is weak. There’s nothing new about [New Zealand’s] level of net external liabilities. They’ve been a problem ever since we’ve been the government, they’ve been a problem for New Zealand for the last ten years," Key said.

"That’s why we were put on negative outlook by S&P and by Fitch. But the reality is in terms of the New Zealand economy, it’s starting to perform very well. We will be back in surplus in a few years, we are creating jobs, we have been growing for eight of the last nine quarters. Those things are factually correct," he said.

The move was not likely to have a dramatic impact on the government’s cost of borrowing as the government still had a strong balance sheet.

Key was confident the government would return its books to surplus in 2014/15. The main risk to the New Zealand economy was a slowdown in China and Australia, he said.

Key noted the ratings agencies had mentioned costs arising from the Chrichchurch earthquakes as a factor in the downgrade. Half of the government’s NZ$18 billion deficit last year was down to the Christchurch earthquakes, he said.

“So if Christchurch is slower to rebuild, if the cost is greater, that can always have an impact on the economy. If global growth really slows, and we go into a double-dip recession, again all of those things impact New Zealand," Key said.

"But for the most part, New Zealand’s position is much better than many other countries. We’re in the Asia region, we’re producing what the world wants, I think it’s time to be careful but also optimistic about our future."

(Updated with video, further comments from news conference, details, links, comments from Key)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Appalling attempt at spin from English (like your headline though). The net foreign liabilities only decreased as a % of GDP because some things were reassigned as credits, like student loans of expatriates. We are not paying down household debt - it is still increasing (unlike in other countries like the US and UK). We still have a structural current account deficit. We are going to face a terrible crunch and the softly, softly approach (which sometimes can be a good idea) isn't going to work. Any way you cut it, -70% of GDP is a terrible position to be in and the credit agencies are right to give us a warning. Hope the government pays attention properly.

Hope the journalists at the news conference try to call English on some of these points. Not holding my breath though.

Yes indeed. Absolutely nothing to do with the present incumbents policies.

If we means the national 'we' it's hard to disagree.

It does seem somewhat harsh to haul anyone in charge after 2007 over the coals.  Options to make drastic structural change have been limited.

1.  They haven't gone on a borrowing binge.

2.  They haven't introduced a raft of tax increases, blatent or hidden.

3.  They've paid down what government debt they could in the circumstances.

4.  They worked with the local banks to push the borrowing terms out further to cushion short term volatility.

5.  They are trying to do some tax reform, which all sorts of political problems and contraints.

What else did you hope for in the midst of the largest economic meltdown since WWII?

Ralph = with regard to your point 1. 'they havent gone on a borrowing binge'. I rather think you need to consult some official figures. Why just this week an extra $1BILLION of NZ debt was sold. For most of the last few months we have been borrowing at the rate of $300 MILLION a week. Now the government maintain they were front loading this borrowing - well lets just wait and see whether that bit is true as well, shall we?

I am not sure what to you constitutes a borrowing binge to you - personally I am very uncomfortable with those figures when there is obvious low hanging expenditure fruit to be plucked (WWF, interest free student loans, extending superann age).

Yes but the other side to that is that was an on going borrowing rate they inherited.

It's not a simple thing to reign in an established spending pattern as evidenced by the things you list as low hanging fruit.  Every one of them are political footballs and linked to long term liabilities.

Apart from WWF, which I thought was the World Wrestling Fer=deration - but I'm obviously misreading that one!

They have however, rolled what loans they have recently to refinance at lower rates.

Undoubtably more needs to be done, but there seems a lack of awareness of how hard some of this is at times.  There is no magic sooty dust.

Ralph, its very simple actually.. don't spend more than you earn.  Did you know that Govt spending is $85billion .. do you know what percentage of our GDP that is?  or how much are Govt tax receipts??  All data freely available on this site and stats NZ.. go check it out.

What advise would you give to a family that was spending more than its income.. would you suggest they continue racking up debt on the credit card or reduce expenses? 

Ralph - Spot on.  The problem throughout the developed world is that we have huge Gov't social welfare spending that is solving nothing.  It has to come to an end but no Gov't wants to be the one to take away the punch bowl.   

Well the theory is very simple.  The practice is demonstrably less so as most countries have run yearly government deficits for decade on decade.

Comparisons with households are only partly valid, they do not print a currency of any kind, nor do not set costs for money or issue bonds.  Households have no reserve banking or in any form of complex finance industry attached to them.

Whoops sorry Ralph, WFF (as in Working for Families) not WWF, chuckle!

Ralph it is good to know that a 50% increase in government debt in the last year is not a borrowing binge.  Helped of course by unfordable tax cuts.

Oops I exagerrated -- the government debt increase June 2010 to June 2011 was a mere 38.5% (from $46.9 billion to $64.9 billion).  So not a borrowing binge after all.

Easily....mind you its not over yet.....


yes Hugh's evidence of just such a statement from John Boy  himself  in the first coulpa minutes he will point out to the interviewer ....We are the masters of our own destiny.

Hugh - I'll try and make it simple:

The system they inherited requires exponential growth. The basis of that is growth in production and consumption. (Let's leave the parasitic activities, which actually outnumber the real by a substantial measure).

That housing boom went on world-wide, because it had to, if growth was to make the next step.

All % growth is exponential, all is expressed in terms of 'doubling time', and all trend graphically to the vertical. The only variable is time. Meaning you're in the shit with such a system on a finite planet, the only question is; 'when'?

It had to be housing, because it couldn't be anything else. Food had already been doubled to obesity. Vehicles had already been doubled to SUVs. The only venue left with enough for the next doubling, was for everyone to get building their home, castle, dream home, grand design, and furnish/decorate/redecorate it. Flat out.

Of course it burst, but it was the symptom, not the cause.

Which is why folk like me, here, have been consistent in saying the problem is not, and in it's present form cannot be, fixed.

Your precious medium multiplex is a fly on a deckchair on a sloping deck on a sinking ship.

SUVs have an effective lifespan of 15 to 20 years.....and cost a shedload....and here we are within 5 years many wont be able to afford to put petrol near them....2+ tonnes of expensive HP written off but still being paid off....nasty when you think about it......I wonder how the Pollies will take the general severe dislike for them when it becomes obvious that they have allowed ppl and even encouraged them to just carry on...

Huge houses on tiny garden to grow things on....some ive seen have a thin surface layer of soil over sand, so are barren without constant watering.........

Hugh has a was the high land prices that done it, I suspect he is unable to admit anything else is possible......because when you do you have to look at your own behaviour....



Errr Hugh - perhaps irony and you are strangers (I assume your bollocks post was in relation to mine?)

"Balanced"...that's the word that Barry Obama was told by his think-tank to use liberally during the recent deadlock talks. Good to see that Bill E has taken notice...but for the fact that everytime BO used it, people then rolled their eye; much like people's response to this statement by BE !

True and funny....... St Nick..

Pretty typical kiwi behavour to blame someone else.  Time for English and Key to resign for their appauling stewardship of our country .. Labour should just give up altogether and disband as a political party, they are even worse in opposition than they were in Govt.   I mean a 3 year old could figure out what is going on, its not like they couldn't see it coming ..  could they really be that incompetent?

Blame however rests ultimately with us kiwi's for voting in successive socialist, big government, interventionist, statist control tag team of National and Labour.  We also keep electing what seems the worst that society has to offer in terms of politicians.  Bottom of the barrel has finally been reached. 

All aboard the slow train reck .. toot toot !!

Who will Administer for us amidst the resignations coupled with abandonment  MattS...?

what would become of us.......?

 Don't you dare say Russell...for he is a man in the bush without arms and legs...!

haha, geez Count, you made me choke on my coffee !!   Err nope.. nor any of the current crop for that matter.

Matt S...yeah I agree, voters are supporting the silly Govt policies (e.g. WFF, Interest free student loans etc.)...democracy itself is a flawed system...because voters are mostly uninformed laypeople (listen to talkback radio to understand), and the MP's are representative of the majority of these people...we need experts making logical decisions - not pandering to moron voters.

John Key blamed the S&P downgrade on high private sector debt and a "very jumpy" atmosphere at major rating companies. He was disappointed at S&P's decision. "But hey, it's private sector debt".

Well not a worry then Gareth....he'll be watching the tail....a few pips n clicks later we'll be back in Alice.

Cometh the tell you RWC or no it's gonna be a pretty sticky rundown to the election.....we'll see just how bad John Boy wants the helm in the not too distant.

Kind of interesting that our PM was on live radio talking about Coro St and cats when the S&P downgrade came out...

Even so he would have had prior knowledge... probably timing was the only thing that caught him by surprise!

John Key plegdes to fight against Coronation St being moved to 5.30pm......fighting for Coro while the countries credit rating has been downgraded? 

Focus Mr PM rather than smiling and waving and getting involved in unimportant issues


here here Mr Foo....bloody mindless whining drivel that it is ......still a lot o those types think that's the way to stay in touch with real people and issues ......spare me days.!

wasn't george bush reading books to little kids when 9/11 happened???

No, he was looking at pretty pictures and per normal.


Nah Matt  if you watch the video of it he was out of his depth  with the kiddie books....I shit you not.

Christov - by jove you've got it!

Malice in Blunderland.

That's Brash up on the mushroom.

With the hooker.                           ;)


and ps - WFF - your lot have no better answers. Until you have the debate about reality vs growth, and become honest with the citizenry, you are no better.              

Cheers wit appreciated..!

who cares what the mighty fitch say.they are parasites on the take from everybody.

The foreign ppl who lend us money.....thats who....if we didnt have any debt we could show them the door.....


 Reading some of today's comments on that and other topics, I just shake my head - you guys are just joining the bloody election game in stead of honestly make the point of an underperforming government mismanaging our economy. Well, obviously we as a society don’t deserve a better rating/ economy – then. Guys where are the decent jobs of the wider NZpopulation, which would keep our standard of living and would have a good chance of survival even in tough times ? NZYouth employment ?

Kunst, if you are after some intelligent comments then I'm afraid you are at the wrong website.  This is blog site and those sort of comments is what one should be expected!

Blaming governments or other third parties doesn't fix anything.  A large part of the reason this country was downgraded is private debt.  That's you and me - not any third party mismanaging anything.

Large quantities of decent jobs requires structural changes our society is currently unwilling to make.

 Ralph –of course it does.  The government is part of our NZsociety. I’m telling here since 3 years we must change our culture towards a more self- sufficient economy. When we learn to make ministers accountable for their (in)actions, we have better performances/ results - when not simply sack them.

But, the government is investing $1.6 billion in upgrading, extending and electrifying Auckland’s rail network and this further commitment to the delivery of extra electric trains to cover the whole Auckland network will realise the full benefits of this investment,” says Mr Joyce

 Purchasing entire train systems from foreign countries is self destructive – adding more debt, but not more value/ potential to our economy.

Minister Jocye must go - he doesn't understand the important correlation between economics and society.




How about a sustainable economy Kunst, even self sufficient "economies" (in the modern definition of economy, not the definition that means economical) are not sustainable.  The monetary system is based on the need for bankruptcies, and any society that uses the monetary system will always have these problems. 

Building trains in NZ does nothing to change the "structural deficit" inherent in the current monetary system.  All over the world people are looking to point the finger, at politicians and bankers, blaming them for the current problems.  The reality is we are using an ancient system that was doomed to failure after failure since the first interest was issued on debt.

Science will tell you that resources are finite, and money is infinite, so the greatest value should be placed on the resources, and money should have no value at all.  Instead we place great value on the successful management of money, and little value on the succesful management of resources.

The most important correlation between economics and society is that the richer people get, the poorer other people have to get.  How else can you define rich and poor, and what is the purpose of an economy except to get rich?

 skudiv - obviously you aren’t reading enough of my comments/ articles.

Aus isn't perfect, nor out of the woods, but this news sure as heck makes me glad I'm no longer in NZ

the descent continues.....

Yep, I agree with that.  Here in QLD, if the state govt needs more money to spend they just dig more stuffs out of the ground!

I think that trick of digging stuff up may be just about to fail the Aussies the way the China slowdown story is building.

I expect Aussie to be downgraded in due course - they have a MASSIVE debt bubble tied up in housing.

possibly, possibly not'

as I said Aus isn't necessarily out of the woods

still think it is better significantly better placed than NZ though 

Ah no.

Spent ten years in Aus and I'm sure as heck glad I'm no longer in Aus.


Ralph ..when one says ..spent ten years in OZ.......I'm sure one means part of it ....or some of it......or the like's a very big place and dependent on where you were  can have a marked  impact on you reflections good and you know...always leave the I've been everywhere man stuff to the Gordon Dryden's of this world

Ah yes, very true.  My particular poison was Sydney.  Still have to work here one week in every month so only three quarters of me escaped.

The same observations could be made about the oft blanket criticisms of NZ - or in truth almost any country on the planet.


Are you Ralph Norris?  Ralph said the same thing when he resigned as CEO for Comm. Wealth Bank to come back to NZ...  after so many years of getting BIG FAT salary, he's tried of making so much money!

Quite, but money is a stern mistress.

"Money is a stern mistress" and she does make you feel good for a little while - then the trouble starts, so I was told!

I think Bill English and John Key shouldn't fret about this. All they have to do is sell the South Island and we'll be debt free with change to spare. The ratings will surely be upgraded.

Yeah but only in the South Island -- so only half a fix.

"this Government has focused on managing New Zealand through the Global Financial Crisis" umm yeah exactly what did you do that was so amazing about the way you guided us through it?

Reduce your debt or anything obvious like that?

Emplement some meaningful polices to move people away from investing in one thing - property, while interest rates were at record lows?

Ahhh no of course not, so nothing then.

Bill English has absolutely no credentials to support the job he has. Add his presentation and the lies the Gummint tells us have little chance of being plausible.

Regrettably any search for a politician with any fiscal credibility will lead us nowhere at the moment.

Generally the Public should consider themselves as a whole for electing that mob.

Talent shows its ways elsewhere. Key gets behind 'Coro' campaign 


We're doomed, Mr Mainwaring, doomed!


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