NZ keeps credit rating despite debt mountain

Moody's has kept New Zealand's sovereign credit rating at Aaa, despite an eye-watering foreign debt that prompted rival ratings agencies to opt for a downgrade.

Friday, January 13th 2012, 10:55AM

by Niko Kloeten

Fitch and Standard & Poor's both cut their sovereign credit ratings for New Zealand back in September last year, in large part due to New Zealand's external debt, which is 159% of GDP.

However, while Moody's said this pile of foreign debt is New Zealand's main vulnerability, there are some factors in this country's favour.

It said New Zealand has a strong economy and low vulnerability to event risk, and although the overall debt position is a worry, the government's books are in much better shape with relatively low debt.

Moody's also said the high level of private debt is less of a problem due to the fact most of it is held by the big four Australian-owned banks.

"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."

Moody's said despite record borrowings of $20 billion last financial year, the government's debt would top out below the average ratio for other countries with triple-A ratings.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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