New Zealand finance minister talks to banks after ratings downgrade

Sep 30, 2011, 6:28 GMT

Wellington - New Zealand Finance Minister Bill English held talks with the chief economists of the major trading banks Friday after the country's credit rating was downgraded by two of the three leading international agencies.

Both Fitch Ratings and Standard & Poor's cut New Zealand's credit rating to AA with a stable outlook from AA+ with a negative outlook, citing the country's rising debt and persistent and widening current account deficits.

English said the third agency, Moody's, had retained the highest possible AAA rating, with a stable outlook.

English summoned the bank economists to a conference call, Radio New Zealand reported, quoting one economist as saying it was highly unusual for the minister of finance to hold a coordinated call with all of them.

English, who met Fitch representatives in Washington last week, said he had not been forewarned of the impending rating cut.

Fitch Ratings said New Zealand's high level of net external debt, which hit 70 per cent of annual gross domestic product (GDP) in June, was an outlier among rated peers.

It said the debt was likely to persist as the current account deficit was set to climb to 4.9 per cent of GDP next year and 5.5 per cent in 2013.

Fitch noted that New Zealand had one of the highest levels of household indebtedness among developed countries at 150 per cent of disposable revenue and this had not declined significantly in the last three years.

It said, however, that New Zealand remained well placed among the world's highly rated sovereign borrowers, with its creditworthiness supported by moderate public indebtedness, fiscal prudence, and strong public institutions. The outlook on the new rating is stable.

English, whose National Party government is facing a general election on November 26, said the rating cuts reflected global concern about foreign debt in the current world economic environment.

He said the agencies acknowledged that the government had made progress in getting its own deficits and debt under control, despite the global financial crisis and the substantial extra cost of earthquakes which devastated the South Island's biggest city, Christchurch.