(Repeat for additional suubscribers)
Sept 9 (The following statement was released by the rating agency)
Fitch Ratings has affirmed New Zealand's (NZ) Long-Term foreign and local currency Issuer
Default Ratings (IDRs) at 'AA' and 'AA+' respectively. The Outlook is Stable. The Short-Term IDR
has been affirmed at 'F1+'. The Country Ceiling has also been affirmed at 'AAA'.
KEY RATING DRIVERS
The affirmation of New Zealand's ratings with Stable Outlook reflects the
following key rating drivers:
- The Stable Outlook on the ratings balances the prospect of fiscal
consolidation and stabilisation of public debt ratios against Fitch's
expectation that already-high net external indebtedness will rise further over
the forecast period, exacerbating a long-standing credit weakness.
- New Zealand's economic policy framework, level of development and standards of
governance rank among the world's strongest from a credit perspective, and
warrant high-grade sovereign ratings. The sovereign has no history of debt
- NZ's high net external indebtedness is a central sovereign credit weakness.
Net external debt (NXD) was 214% of current external receipts at end-2012
against the 'AA' range median of a net creditor position of 105%, and an OECD
median net debtor position of 63%. Fitch projects NZ's current account deficit
will widen and NXD ratios will rise further over the forecast period, led by
accelerating residential construction and the reconstruction of Christchurch, a
city affected by major earthquakes in 2010 and 2011.
- NZ's public indebtedness is below that of many advanced-economy peers. Direct
public debt plus local government debt is projected at 42.9% of GDP at end-June
2013 (FY13), up from 20.7% at end-FY08 and above the end-2012 'AA' range median
of 36.9%. The 22.2pp rise in NZ's debt since 2008 exceeds the median rise for
the OECD countries over 2008-2012 of 16.3pp. However, Fitch expects NZ's ratio
will decline from FY14 given the strength of the cross-party consensus on fiscal
- NZ's households are relatively highly leveraged. Household debt stood at
144.5% of disposable income at end-2012 compared with about 100% in the US.
Moreover, NZ's household indebtedness has declined only modestly from a peak of
153% of disposable income at end-FY09. The ratio has been rising since end-June
2012 as credit growth to households has re-accelerated. However, NZ's banks are
relatively strong on a stand-alone basis and are largely foreign-owned, limiting
the contingent liability on the sovereign to support the system in the event of
- Relatively low domestic savings underlies NZ's credit weaknesses of high
external debt and private-sector leverage. The domestic savings rate averaged
21.5% over 2003-2012 against the OECD median of 23.3%.
- NZ's economic performance supports the ratings. GDP growth averaged 1.7% per
annum over 2009-2013, not far below the median for 'AA' rated peers (2.2%), and
above the median for 'AAA' rated peers (0.8%). NZ's growth has been less
volatile than either rating category median. Inflation has been lower and less
volatile than the 'AA' category median.
- Nevertheless, NZ's economy is highly commodity-dependent in comparison with
other advanced economies, reflecting the importance of the country's
agricultural sector. Commodity exports are projected to be 56% of CXR in 2013
against 10-year medians for the 'AA' range of 19%, and for the 'AAA' range of
13%. This reflects NZ's comparative advantages. However, it exposes NZ's
economic stability and sovereign credit profile to business risks in the farming
sector. A serious and lingering health issue such as an outbreak of foot and
mouth disease would likely have a strong and lasting adverse effect on the
economy and the broader credit profile, if it occurred, although the likelihood
is low in Fitch's estimation.
The Stable Outlook reflects Fitch's assessment that upside and downside risks to
the rating are currently well balanced. Consequently, Fitch's sensitivity
analysis does not currently anticipate developments with a high likelihood of
leading to a rating change.
The main factors, individually or collectively, that could lead to positive
rating action are:
- Further progress in fiscal consolidation leading to an outlook for sustained
reductions in public debt ratios;
- Rebalancing of the economy that put New Zealand's net external debt ratios on
a sustainable downward path.
The main factors, individually or collectively, that could lead to a negative
rating action are:
- A sharp and sustained rise in New Zealand's external borrowing costs that
imposed a disruptive tightening on NZ's monetary and credit conditions
sufficient to have a durable negative impact on growth, employment, the public
finances, and the health of the banking system;
- A negative shock to the real economy with similar lasting adverse effects,
exceeding the typical cyclical volatility of the economy;
- A wider and/or longer-lasting current account deficit than Fitch currently
projects, leading to higher NXD ratios relative to peers.
The ratings and outlooks are sensitive to a number of assumptions:
- Fitch assumes the outlook for the global economy will remain broadly in line
with the projections laid out in its June Global Economic Outlook;
- The ratings incorporate an assumption that New Zealand's savings and
productivity performance do not undergo a sharp structural change relative to
historic behaviour over the forecast period to 2015.