Bloomberg News

New Zealand’s Rating Reduced by Fitch on High Debt Level

September 29, 2011

(Add Fitch comments starting in the second paragraph.)

Sept. 29 (Bloomberg) -- New Zealand’s credit rating was cut one step to AA by Fitch Ratings, which cited the southern Pacific nation’s high level of debt and persistent current account deficit.

The outlook is stable after the rating was reduced from AA+, Fitch said today in a statement. Yields on 10-year notes rose two basis points, or 0.02 percentage point, to 4.31 percent. New Zealand’s dollar erased an earlier gain versus its U.S. counterpart, slumping 1.3 percent to 76.70 U.S. cents.

The country’s 83 percent net debt to gross-domestic-product ratio in U.S. dollar terms at the end of last year compares with 10 percent for the median of AA rated nations, Fitch said. The current account deficit, or the amount of imports that exceed exports, is likely to widen to 4.9 percent in 2012 and to 5.5 percent the next year, the firm said.

“New Zealand’s high level of net external debt is an outlier among rated peers -- a key vulnerability that is likely to persist as the current account deficit is projected to widen again,” Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch, said in the statement. The country “remains well placed among the world’s highly-rated sovereign credits.”

New Zealand’s ranking was cut from AA+ in part because its domestic savings to investment ratio is unlikely to narrow, which is needed to reduce its current account deficit, Fitch said. The country’s 150 percent household indebtedness relative to disposable income compares with 157 percent in Australia 116 percent in the U.S.

The nation’s 0.7 percent five-year average growth in gross domestic product “compares unfavorably” with that of 1.1 percent for AA rated nations and 1.4 percent for those ranked AAA, Fitch said.

--Editors: Dave Liedtka, Paul Cox

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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