New Zealand Government - Mid-year budget supports sovereign

Moody's: New Zealand Government - Mid-year budget supports sovereign credit profile (Aaa, stable outlook)

On 13 December, New Zealand (Aaa stable) released its Half Year Economic and Fiscal Update (HYEFU) for the fiscal year ending June 2019 (fiscal 2018-19). The update maintains the government's commitment to fiscal discipline, as demonstrated by projections for continued budget surpluses and debt reduction, supporting the sovereign credit profile.

Key points are as follows –

• The government reasserted its target of reducing core Crown gross debt to 25% and core Crown net debt, which incorporates financial assets, to below 20% of GDP in 2022. Moody’s forecasts that the budget will remain in surplus and that gross central government debt will edge down to 27% of GDP in 2019, from about 29% in 2018, and fall further thereafter, in line with the government’s projections. At these levels, gross central government debt is significantly lower than many other Aaa-rated sovereigns.

• New Zealand’s strong public finances provide ample fiscal flexibility to respond to long-term spending needs related to social demands, or to absorb any sudden rise in expenditure to support the economy through a shock.

• The government forecasts average annual real GDP growth of 3.0% in 2019-20, which is lower than budget projections, and higher than Moody’s forecasts. Moody’s expects continued solid global demand for New Zealand’s agriculture and tourism, robust investment in housing and slower population growth to support real GDP growth of around 2.5% in 2019 and 2020.

• Risks to growth include the potential for further trade restrictive policies around the world, which could threaten recent robust export momentum. Ongoing weakness in consumer and business sentiment could hurt private consumption and investment.

• New Zealand's track record of fiscal discipline and prospects for continued healthy GDP growth will support the government’s aim to maintain robust public finances.

For more details, please find attached just released report “Government of New Zealand: Mid-year budget reinforces robust public finances and fiscal policy flexibility, supports sovereign credit profile”.
ReportNZ_Midyear_budget_supports_sovereign_credit_profile_Dec_2018.pdf

If referencing or sourcing contents from this report, please attribute them to either “Moody’s Investors Service” or “Matthew Circosta, Analyst, Moody’s Investors Service”.

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