KEY POINTS:
Standard & Poor's said today it had affirmed its AA-plus sovereign credit rating for New Zealand debt and said the outlook was stable.
"The sovereign ratings on New Zealand are underpinned by the country's favourable fiscal and monetary performance, economic resilience, and conservative macro-economic management," said S&P credit analyst Kyran Curry following the agency's regular review.
"The strength of the Government's fiscal position significantly mitigates the risk of New Zealand's high external debt, although it does not eradicate this risk entirely," Mr Curry said.
New Zealand's rating is one notch below the top grade, achieved by Australia. A high rating allows a country to borrow in international markets at lower interest rates.
The main potential source of vulnerability to New Zealand's rating remains its high private sector foreign debt and the country's associated high current account deficit, Mr Curry said.
These exposed New Zealand to a loss of investor confidence or a significant depreciation in its currency.
New Zealand's current account deficit widened to about 9.7 per cent of GDP in the June year, from an already high 8 per cent in 2005.
This compared with a median current account surplus of 2.9 per cent for those countries rated in the 'AA' category.
New Zealand's net foreign debt is expected to be about 190 per cent of current account receipts, compared with the median of 26 per cent for similarly rated countries.
Mr Curry said the risk from the high foreign debt and the associated high current account deficit was offset somewhat by the Government's solid fiscal profile, which would allow it to absorb a sharp economic slowdown.
The risk was also partly mitigated by advanced risk management that had around 90 per cent of the debt hedged.
As well, the public sector's direct exposure to this risk was limited, as the private sector accounted for about 90 per cent of the foreign debt.
Mr Curry said the stable outlook also took account of S&P's expectation the current account deficit would move lower as domestic demand continued to slow and growth is rebalanced in favour of an export-led recovery.
"If this outcome fails to eventuate, however, the ratings on New Zealand could come under pressure." he said.
A spokesman for Finance Minister Michael Cullen, said the minister would not be commenting on the report, which had nothing new from its previous analysis of the economy.
- NZPA
