Credit rating agency confirms New Zealand economy sound

  • Bill English

Credit rating agency Moody's annual report on New Zealand confirms that we have a strong, adaptable economy, Treasurer Bill English said today.

"That is exactly what National's economic framework is designed to achieve and it is what New Zealand needs to move into the 21st century.

"The message from the report is that we must continue to have policies that drive growth, and that we need sound government financial management behind that. Running surpluses and repaying debt are important, so any reduction in surpluses should be about improving our economic performance.

"Moody's says the country's credit rating of Aa2, the same as Australia, reflects the adaptability and improved performance of our economy from fifteen years of structural reforms and a prudent macroeconomic framework.

"Moody's also said the Government's record in managing public finances was impressive relative to other OECD countries. The healthy fiscal position and the government's low debt burden supports the Aaa rating on the government's domestic debt.

"This fiscal responsibility is important to maintain investor confidence, according to Moody's. This is because the high current account deficit leaves us exposed to external developments and potential shifts in market sentiment.

"But New Zealand's Aa2 credit rating is not under threat from our current account position. Moody's confirmed in the annual report that our current credit rating fully captures their concerns about New Zealand's external position.

"They noted a number of factors which help alleviate New Zealand's vulnerability, including our floating exchange rate, the widespread use of hedging against exchange rate movements, and the fact that much of New
Zealand's external debt is in domestic currency and/or accounted for by inter-company loans.

"The ratings agency also commented on New Zealand's reliance on agricultural exports, which has contributed to weakness in our trade balance as the economy has been affected by drought and soft world prices. Treasury's latest forecasts are for exports of meat and dairy products to grow by 12% next year and this will help lead to a reduction in the current account deficit.

"Over the longer term, Moody's noted the importance of boosting private savings. In their opinion, future reforms to the welfare system and the amendments to the tax structure envisaged by the government could lead to an increase in savings in New Zealand.

"We recognise the importance of strengthening New Zealand's export sector. This can best be achieved by providing an environment in which all firms can excel. Low taxes, flexible labour markets, and reducing costs to business, are policies that will achieve this," said Mr English.