S&P says budget consistent with AA+ credit rating

International credit rating agency Standard & Poor's says today's budget is consistent with New Zealand's AA+ sovereign credit rating. Read S&P's announcement below:

Standard & Poor's Ratings Services said that its views on New Zealand's (foreign currency rating AA+/Stable/A-1+; local currency rating AAA/Stable/A-1+) sovereign creditworthiness are not immediately affected by today's budget. The 'AA+' long-term and 'A-1+' short-term foreign currency sovereign ratings on New Zealand reflect our opinion of the country's sound public finances, as well as its sound financial sector, resilient economy, and open and transparent policy environment. These strengths offset New Zealand's high level of private sector external indebtedness at a time of continuing elevated stresses in the global financial system. The Crown is forecasting a fiscal deficit on a cash basis of 6.5% of GDP in the year ending June 30, 2011.  The budget provides for lower deficits of 4.5% in 2012 and 3.3% in 2013 and an eventual return to surplus in 2016. Although the deficit in 2011 is large, we note that the outlook has improved since the last budget and there remains an achievable and believable path to return the operating position to surplus. Moreover, this occurs during a period of low government debt: New Zealand's gross sovereign issued debt is forecast to rise to 32.8% of GDP in 2011 and peak at 33.4% of GDP in 2015. "New Zealand's current account deficits and high external debt leave the economy vulnerable to a change in international investor sentiment or adverse exchange-rate movements," Standard & Poor's credit analyst Kyran Curry said. "The country's external financing needs are among the highest of any rated sovereign. In addition, the current account deficit is expected to return to 7% of GDP annually within the next few years as economic growth recovers. This implies continuing growth in the stock of New Zealand's net external debt." Mr. Curry added: "These risks are partly mitigated by a range of factors, including a very high level of hedging of New Zealand's foreign currency external debt; and the private sector accounting for the bulk of New Zealand's net foreign debt and having a strong record in absorbing significant fluctuations in the exchange rate. New Zealand also has a strong history of prudent and flexible monetary and exchange-rate management."