BusinessDesk: NZ’s triple-A rating with Moody’s underpinned by economic strength, low vulnerability to risk

New Zealand’s Aaa sovereign credit rating with Moody’s Investors Service is underpinned by the nation’s economic strength and low vulnerability to event risk, the rating agency said today.

Moody’s said the government’s fiscal and debt positions were very strong, and any threats from the nation’s high level of private debt was mitigated by the fact that the majority of those liabilities are held by the nation’s Australian-owned banks.

Still, New Zealand’s total external liabilities equalling 159% of gross domestic product is the nation’s biggest vulnerability, and prompted downgrades by rival rating agencies Standard & Poor’s and Fitch Ratings at the end of September.

“A strong fiscal framework, which has supported the successful track record of fiscal prudence under governments of both major political parties, provides some assurance that the budget balance will return to surplus by the middle of the decade,” Moody’s said.

“The negative net international investment position has been large for many years without substantially affecting the government’s finances.”

Meanwhile, Moody's said New Zealand’s reliance on foreign saving is "a vulnerability that could affect the government’s rating if further external shocks were to materialize."

The government has worked to keep its net debt below 30% of GDP, even as it borrowed a record $20 billion last financial year, and Moody’s said set to peak below the average ratio of other triple-A rated nations.

Finance Minister Bill English has asked government departments to come up with creative ways to cut spending without reducing the level of services, and the Treasury is asking private sector parties to come up with ideas to cut government costs and improve service delivery. New Zealand’s operating deficit of $3.36 billion in the four months ended Oct. 31 bigger than forecast as total individual tax revenue accrued fell short of expectations.

The rating agency noted New Zealand’s rising vulnerability to earthquakes after the temblors in Canterbury caused upwards of an estimated $20 billion in damage. Investors rallied to New Zealand government debt in the first sale on Tuesday, with short-term bills attracted bids worth three times the $1.48 billion sold.

The rating agency’s credit analysis had little impact on the market, with the New Zealand dollar little changed at 79.64 US cents, and the yield on 10-year government bonds falling 1.5 basis points to 3.88 percent.