By Alex Tarrant
It will be a “huge challenge” for government to meet criteria laid down by ratings agency Standard & Poor’s for a credit rating upgrade, which calls for sustained current account surpluses, Finance Minster Bill English says.
The government again came under fire from ACT, and Opposition parties during the last Question Time in Parliament before the November 26 election for the double credit rating downgrade dished out by Fitch and Standard & Poor’s on Friday last week.
The government’s sovereign rating was cut to AA from AA+ by the two ratings agencies, which highlighted New Zealand’s high external debt and persistent current account deficits as their major concern.
The government regarded Treasury’s forecasts showing New Zealand’s current account deficit would widen from 2.4% of GDP in the year to March 2010 to 6.9% of GDP in the year to March 2015 as a challenge, English said. Policies would focus on mitigating this, and the forecast rise in New Zealand’s net international debt position.
ACT Parliamentary leader John Boscawen asked English in Question Time what the government would be doing to try and reverse Friday’s downgrade, to which English responded the government would work on improving the economy’s competitiveness to export more and lift incomes.
The government would try to get its books under control, with a track back to surplus in two or three years to start repaying debt, English said.
“In terms of the rating agencies, the threshold that at least one of them has set [is] a sustained positive current account balance. Now that is a huge challenge for a country that hasn’t achieved that in the last 30 or 40 years, but we are up to that challenge,” English said.
Labour’s opposition finance spokesman David Cunliffe then asked English whether the government planned to keep increasing the current account deficit, and New Zealand’s net international investment position as forecast in the 2011 budget for the next four years?
“The government plans to continue progress on both of those figures...we’ve made significant progress on the net international investment position – it’s improved,” English replied.
“There are some forecasts that say it will deteriorate. We just regard that as a challenge, to turn that around,” he said.
“On the current account deficit, thankfully it is half of what we inherited when we became the government, just as interest rates are much lower than when we became the government, and we want to continue with that progress,” English said.