New Zealand doing remarkably well - Moody's

Ratings agency Moody's says the country's low Government debt puts it in a good position to navigate the recovery from Covid-19 disruption.

It has reaffirmed New Zealand's Aaa rating.

Moody's said the Government had a large degree of fiscal headroom to increase spending in coming years to support the recovery. While this would lead to higher debt and fiscal deficits, Moody's said the commitment to responsible fiscal management meant this was manageable.

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At 27.8 per cent of GDP in 2019, New Zealand's debt burden was lower than that of comparable countries, it said - slightly behind Switzerland. It had been below the median over the past 10 years.

That was in contrast with Australia, where the debt burden had increased threefold over the past decade.

"While the global coronavirus outbreak presents unprecedented challenges to New Zealand's economy, the Government has promptly deployed its fiscal capacity to buffer the impact of the shock. Institutional effectiveness mitigates vulnerabilities related to reliance on external financing and elevated household debt," Moody's said.

"We expect the economy to remain resilient in the face of shocks, given its trade openness, diverse and competitive agricultural export base, flexible labour and product markets, high wealth levels and supportive demographics, driven by robust net immigration. These attributes underscore New Zealand's medium-term growth potential of around 2.5 per cent to 3 per cent, higher than many advanced economy Aaa-rated peers.

"New Zealand's external risks stem from its commodity dependence and net international liabilities, which have narrowed, but remain large compared with Aaa-rated peers at around 55 per cent of GDP. A flexible exchange rate, over one-half of external debt obligations denominated in local currency, and banks' reduced reliance on short-term external funding all mitigate potential credit risks."

Moody's said the New Zealand Treasury had a strong record of managing shocks and was expected to demonstrate fiscal discipline over the long term.

It comes after a report from Fitch which said New Zealand was likely to hit a 4.8-per cent-of-GDP deficit in the year to June, but was in an overall healthy fiscal position after years of consistent surpluses.

Finance Minister Grant Robertson welcomed the report.

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"New Zealand's low Government debt compared to the rest of the world puts us in a strong position to invest in the economy to create jobs and lift incomes as we recover from the impact of Covid-19," he said.

"We can do this because we have managed the books carefully and kept debt under control to be ready for a rainy day. Our economic plan focussing on infrastructure, skills and education, productivity, regional economies and SMEs also puts us in a good position to kick-start growth again.

"We are continuing to build our recovery plan in areas like infrastructure investment, manufacturing, regional opportunities, and the digital economy to cushion the blow of Covid-19, create jobs and boost incomes.

"Just as the rest of the world is looking to New Zealand's world-leading public health response, we also welcome acknowledgement of our world-leading fiscal position and ability to invest for the recovery."

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