Debts Dig at New Zealand Credit Rating

September 29, 2011 Taxation in New Zealand

New Zealand Credit RatingWELLINGTON – New Zealand’s credit rating has been downgraded by by Fitch Ratings from AA+ to AA, with high debt levels being cited as the primary reason.

On September 30th the international credit rating agency Fitch Ratings announced that it has cut New Zealand’s credit rating from AA+ to AA. World markets immediately reacted to the news, with the New Zealand Dollar falling to a six month low and yields on New Zealand 10 year notes rising by 2 basis points.

New Zealand’s high levels of net external debt were cited as the primary reason for the downgrade, and currently it stand at 83 percent of the national GDP, compared to an approximate median of 10 percent for other countries with an AA credit rating by Fitch Ratings. The excessive debt levels are accompanied by persistently high current account deficits, which Fitch projects to reach 4.9 percent in 2012 and 5.5 percent in 2013. New Zealand’s recent GDP growth levels are also regarded as low, with the five year average growth reaching only 0.7 percent, compared to an average of 1.1 percent for AA rated nations and 1.4 percent for AAA rated countries.

New Zealand’s credit rating has been on a negative outlook since June 2009, but is now regarded as stable following the downgrade. According to New Zealand and international analysts, the country’s financial positions are being further exasperated by current international financial markets, which are now growing increasingly debt averse in the face of the looming default risks in Europe.

Photo by Pauli Antero