Excessive Government debts and credit card borrowing have led to New Zealand’s credit card rating being downgrade from AA+ to AA.
In a move that did not seem to surprise many, New Zealand’s credit rating was been downgraded from AA+ to AA on September 30th by Fitch Ratings. The international ratings agency pointed to the country’s staggering external debt levels as the primary reason behind the downgrade.
New Zealand’s net external debts currently stand at 83 percent of the GDP. According to Fitch Ratings, there has been no significant evidence that the figure is likely to drop, with neither the government nor public showing signs of making strong moves to slash their debts. It was added that the country also has a high current account deficit, which is expected to hit 4.9 percent in 2012 and 5.5 percent in 2013.
While addressing the New Zealand media on the day before the announcement, the Reserve Bank Governor Alan Bollard warned that the current debt crisis in Greece could a debt averse financial market turn a negative eye upon New Zealand. Commenting on the credit downgrade, the Finance Minister of New Zealand Bill English said that the country has improved its financial situation recently, but international financial markets are currently “hyper sensitive” to debt. He conceded that the government could have done more to encourage taxpayers to lower their personal debts levels, but the move would have required significant cuts and reforms to the national welfare system.
Banks have shown mixed reactions to the credit downgrade. ANZ’s chief economist Cameron Bagrie has already said that he does not think that the cut will have an impact on local borrowing costs in the short term. However, Westpac chief economist Dominick Stephens has said that the bank is already looking at the possibility of raising borrowing costs.
Photo by Mark Lincoln