Government budget seen moving into surplus in 2020s
The government’s creditworthiness is improving, says rating agency Standard & Poor’s, citing the likelihood of a government budget surplus in the early 2020s.
S&P revised its outlook on New Zealand’s sovereign credit rating to “positive” from stable while maintaining the rating at AA+, just shy of the highest AAA rating.
“The positive outlook on the long-term ratings on New Zealand reflects our view that the general government budget could achieve a surplus in the early 2020s,” it said.
“This would reduce net general government debt and provide additional resilience to macroeconomic or financial sector risks that could arise due to high levels of external and domestic leverage.”
The agency’s analysis featured several predictions for the government's accounts, including a reduction in deficits and debt after this fiscal year.
“We expect smaller deficits and solid economic growth to result in net general government debt declining to less than 19% of GDP in fiscal 2022, from 20% in fiscal 2020," it said.
However, “in contrast to its strong fiscal and debt profiles, New Zealand's external imbalances remain the key credit risk. We expect current account deficits to remain stable at about 3.3% between 2019 and 2021, after narrowing briefly in 2016-2017.”
External debt – mostly carried on commercial bank balance sheets – was “very high compared with peers,” said S&P.
“New Zealand's current account deficits are traditionally associated with external borrowings by its banks to fund its growth and is a weakness to the banking system, in our view. The possibility of foreign investors becoming less willing to fund banks at low interest rates poses a risk to the banking system, the broader economy, and, in turn, government finances.
“However, we believe that New Zealand's banks will retain ready access to external markets.”
The agency said in its view the economic imbalances from high house prices were stabilising, mainly thanks to the policies of the Reserve Bank.
“That said, because of the historical buildup, the risk of a sharp correction in property prices remains elevated. If a fall were to occur, the impact on financial institutions would be amplified by the New Zealand economy's external weaknesses.”
S&P said its revised outlook for the government finances would have no effect on its ratings for the big four banks – ANZ, BNZ, ASB Bank and Westpac.
“In our opinion, the likelihood of timely support from the government for the four major New Zealand banks is low,” it said.
