Oct. 3 (Bloomberg) -- New Zealand and the companies that cut its credit rating last week have a different view of the country’s ability to curb government and household debt, Finance Minister Bill English said.
Standard & Poor’s, which reduced New Zealand’s long-term foreign currency rating to AA from AA+ on Sept. 30 said there’s a likelihood household and corporate debt will continue to rise even as earthquake-related spending pressures and fiscal stimulus to support growth strain the government’s ability to curb borrowing.
“We’re not ignoring what they’re saying,” English said on TV New Zealand’s “Q&A” program yesterday. “They have a different view than we do of where we’ll end up.”
New Zealand will stay its course and maintain the focus on changing the tax system to make it more competitive and getting government debt under control, English said. The country joined the U.S. and Italy among nations that saw their ratings cut this year after Christchurch, New Zealand’s second-largest city, was hit by earthquakes in the past 12 months, straining government coffers.
New Zealand’s sovereign credit rating was cut one step to AA by Fitch, which also cited the southern Pacific nation’s high level of external debt and its persistent current account deficit as the reasons. The outlook is stable after the rating was reduced from AA+, Fitch said in a Sept. 30 statement.
The rating cuts add to concerns in New Zealand that borrowing costs will increase. In 2009, Prime Minister John Key said a rating cut could add 1 percent to 2 percent to mortgage rates and cost the government an additional NZ$600 million ($457 million) to finance its debt. English said today the situation is different and New Zealand is benefiting from lower interest rates around the globe.
“There may be some upward pressure on rates but bear in mind interest rates currently are at 45-year lows,” English said. “Interest rates around the world are still headed down.”
New Zealand’s currency fell to its lowest level in six months against the dollar after the rating cuts. The kiwi dropped 1.3 percent against the dollar last week. It’s down 10.1 percent this month and down 7.5 percent during the quarter. The Australian dollar has lost 8.8 percent since Aug. 31 and has declined 9.1 percent during the past three months.
The rating cuts occurred as New Zealanders prepare to head to the polls in a general election on Nov. 26.
The governing National Party has almost double the support of the opposition Labour Party, according to a One News Colmar poll released yesterday. The Nationals had 56 percent support of those polled compared with 29 percent who said they'd vote for Labour in the survey of 1,008 eligible voters.
English said New Zealand is benefiting from having most of its trade with China and Australia, two economies that are outperforming the rest of the world.
“There’s always some risks around an economy like China which has been growing at double-digit growth, 12 to 14 percent,” English said. “Even if it slows down though, we believe it’s still a pretty positive story for our food-related exports.”
--Editor: Paul Tighe, Jim McDonald
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