Standard and Poor's and Fitch have downgraded New Zealand's sovereign debt ratings in a move economists said was as much about turmoil on world financial markets as it was about the country's high level of debt.

Fitch downgraded New Zealand's foreign currency rating to AA from AA+ and S&P followed up with a cut to its long-term foreign currency ratings on New Zealand to AA from AA+. S&P also cut its long-term local currency rating on New Zealand to AA+ from AAA.

Fitch said New Zealand's high net external indebtedness was a key vulnerability, particularly in a global environment that had remained volatile since the ratings were assigned a negative outlook in 2009.

Both agencies highlighted the current account - which measures the difference between what the country earns from the rest of the world through trade and investment and what the world earns from New Zealand - as a cause for concern.

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BNZ treasurer Tim Main said the downgrades highlighted what he said was an "international credit standoff" as the European Union grappled with Greece's sovereign debt crisis and similar concerns with other bigger EU members, such as Italy and Spain.

New Zealand remains in the club of advanced economies with high household indebtedness - around 150 per cent of household disposable income, similar to levels in Australia (157 per cent) and Britain (159 per cent). "Unlike the UK and US, New Zealand has seen no meaningful reduction in this ratio since 2008," Fitch said.

New Zealand's current account deficit represented 3.7 per cent of gross domestic product (GDP) in the year to June. Economists expect the shortfall to widen to around 5 to 6 per cent within two years - still well short of the deficits recorded from 2004 to 2009, when it peaked at 8.9 per cent of GDP.

Deutsche Bank NZ chief economist Darren Gibbs said New Zealand had in the past been able to get away with high current account deficits because funding markets were friendlier.

Economists pointed out that the ratings remained favourable, relative to many other Western countries.

S&P had in the past warned of the danger of a widening current-account deficit that leaves the country increasingly dependent on foreign capital.

The market reaction yesterday was relatively mild, with bond yields gaining about 11 basis points across the curve. The New Zealand dollar fell against all major crosses.

Main said the Government's forecast operating surplus for 2014/15 would help the ratings outlook, as would the trend towards households and businesses paying off debt.

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And S&P said rising public savings would be an important component for keeping the current account deficit in check.

Upward pressure on the ratings could eventually emerge if sustained current account surpluses, led by a stronger export performance and higher public savings, markedly reduced external debt, S&P said.

Finance Minister Bill English is sticking with the same economic approach, despite the double downgrade.

"The ratings news today reinforces the need for the Government to continue with its clear and balanced plan to get on top of that debt," he said.

"That involves returning to surplus and exporting more to the rest of the world."

English said political opponents to the left were promising to borrow more, spend more and tax more, which would make a challenging situation even worse.

"We are following a balanced economic plan that is right for New Zealand."

Standard & Poor's
Foreign currency rating:
* Australia: AAA
* UK: AAA
* US: AAA+
* New Zealand: AA
* Spain: AA
* China: AA
* Italy: A
* Ireland: BBB+
* Portugal: BBB-
* Greece: CC