Hon Bill English Minister of Finance

22 November 2010

Media Statement

Credit rating news reflects NZ's debt reliance

Standard and Poor's decision to put New Zealand's foreign currency rating on negative outlook highlights the need to reduce our heavy reliance on foreign debt, Finance Minister Bill English says.

"This is a long-standing problem for New Zealand and has left us vulnerable as a country," he says. "The Government is taking steps to reduce this external vulnerability and to move the economy towards savings and exports.

"They include the tax changes in the Budget this year and work currently underway with the Savings Working Group. From here, it's important that our economic programme continues.

"Standard and Poor's praised the New Zealand Government's commitment to get back to budget surplus by 2016, and it noted that New Zealand had outperformed most other advanced economies in the past two years.

"However, it said the negative outlook on New Zealand's AA+ foreign currency rating reflected risks stemming from its widening external imbalances and relatively low levels of national savings.

"As Standard and Poor's notes, New Zealand's household liabilities - at about 156 per cent of disposable income - are 50 per cent higher than 10 years ago.

"Banks and the Government, which are borrowing in volatile international financial markets, face higher interest costs on their increasing debt. In the past 10 years alone, New Zealand's net foreign liabilities have jumped from about $90 billion to more than $160 billion."

Mr English noted that, despite the negative outlook on its AA+ rating with Standard and Poor's, New Zealand still enjoys the highest possible Aaa (stable) rating with Moody's.

ENDS

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