Finance Minister Michael Cullen and National’s Bill English welcomed Standard & Poor’s reaffirmation of NZ AA+/A-1+ foreign-currency and AAA/Stable/A-1 local-currency sovereign credit ratings. Both found endorsements of their policies in the ratings review. Cullen said it was vital our Govts maintain investors’ confidence in NZ as a place to invest in and to do business with; he also said this is being done (eg) through “encouraging a stronger personal savings culture, by maintaining the strong financial position of the Crown itself and by ongoing steps to strengthen our capital markets,” but there was no room for complacency.

Fiscal Discipline Still Vital. S&P had mentioned the Govt’s strong fiscal position, NZ’s political stability and its flexible resilient economy, but it also noted our high national level of external debt and weak external liquidity. “Hence it would be a risky and reckless strategy for any serious political party to propose to actively, purposefully go out and flood the market with a whole lot more NZ dollar-denominated debt.” While National plans a “modest” increase in Govt borrowing to increase investment in infrastructure, English could seize on S&P’s observation “ongoing fiscal discipline is likely to remain the norm,” even if there were a change of Govt. English contended this was an “endorsement of our economic credentials” and the S&P outlook directly contradicted Labour’s campaign to make Nationals plan sound risky.

NZ Vulnerable To Overseas Shocks. Govts want to win favour from the credit rating agencies for good reason. Country ratings influence the cost of borrowing, both for Govt and private-sector borrowers. Georgia suffered a financial blow when S&P trimmed its credit rating from B+ to B because the outbreak of armed conflict could “scare off” foreign investors. Prospects of National being elected and of raising some debt put NZ in a much lower league as an investment frightener, which explains S&P’s apparent indifference to what happens at the polls. Anyway, the public debt is no problem. S&P acknowledges the strategy of building up financial assets and paying down debt has left the Clark Govt in a net credit position. The country’s borrowing is a different matter: S&P repeated its warnings NZ’s current account deficits and whopper overseas debt make our economy vulnerable to external shocks, leaving it with external financing needs among the highest of any country whose credit it rates. But don’t count on politicians in combat gear taking care to distinguish public from overseas debt.

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