Credit rating agency Moody's Investors Service today gave New Zealand a tick in its annual review despite it having the highest external deficit of any Aaa-rated nation.
The influential international agency deemed the ratings outlook as stable, reflecting the country's flexible and market-oriented economic policies. These had supported
stronger economic performance that was less subject to external shocks, it said.
Report author Stephen Hess said the Labour-led minority coalition Government had "demonstrated its commitment to maintaining fiscal operating surpluses and keeping debt at a prudent level".
Public debt in the public sector including crown entities was less than 40 per cent and declining.
The Government was close to achieving its goal of maintaining gross debt at around 20 per cent of GDP and when assets such as the New Zealand Superannuation Fund were counted was actually in surplus, Mr Hess said.
Meanwhile, the external liability -- the highest negative position among triple A rated countries -- was likely to remain high, he said.
"However, there are several factors that make New Zealand's large external liability position less risky than might appear on the surface."
These included the high proportion of liabilities denominated in New Zealand dollars and that almost all foreign currency debt was hedged.
"Much of the external liabilities of banks in New Zealand have a related-party nature given that all but one of the banks is foreign-owned, preventing direct disruption to Government finances or the balance of payments in the unlikely event of problems," he said.
Mr Hess noted New Zealand would have real annual growth in 2007 of less than 2 per cent for the third consecutive year. Despite this, inflation was above the Reserve Bank's 1-3 per cent target range.
The Government budget surplus at 5.5 per cent of GDP was a bit down from the prior year, "but remains quite substantial".
Despite having gross debt of 22.6 per cent of GDP, when all assets were counted, the Government had surplus funds equivalent to 1.3 per cent of GDP.
The New Zealand dollar did not respond to the announcement, remaining at around US69c.
- NZPA
