The government was caught offguard by Standard & Poors ratings agency's move to put New Zealand on negative watch this afternoon.New Zealand is still at AA+/A-1+.Prime Minister John Keys said the move has been “met with surprise from the finance
The government was caught offguard by Standard & Poors ratings agency’s move to put New Zealand on negative watch this afternoon.
New Zealand is still at AA+/A-1+.
Prime Minister John Keys said the move has been “met with surprise from the finance minister given the conversation he had with them two weeks ago.”
Mr Key put the move down to greater global uncertainty and said New Zealand is still on track to keep its total government debt within 30%, which many countries were facing “80, 90, 100% or more” government debt.
The release from the ratings agency indicated concern that the largely private sector current account deficit makes New Zealand vulnerable.
The agency also highlights “weakened fiscal flexibility,” which, translated, means there is minimal room for a surge in government spending if the economy faces further shocks.
“New Zealand’s vulnerability to external shocks, arising from its open and relatively undiversified economy, also raises risks to the country’s economic recovery and credit quality,” said Sovereign Ratings credit analyst Kyran Curry.
However, he stressed these are offset by New Zealand’s fiscal and monetary policy flexibility, strong institutions, economic resilience, and its actively traded currency.
“The main risk to the ratings would be a significant weakening in the credit quality of New Zealand's banking sector, which is largely owned by the Australian banks, Mr Curry said..
“That said, however, a range of factors ameliorates some of these risks, including a high degree of foreign-currency-debt hedging and an actively traded currency. New Zealand has independent and effective monetary policy settings with a highly traded and free-floating currency that allows external imbalances to adjust.”
