Credit agency S&P Global Ratings has confirmed New Zealand’s AA+ rating with a stable outlook while highlighting the need to address budget deficits and debt.
The second-highest rating, restored in early 2021 after the pandemic, reflects expectations that deficits will decrease and the economy will accelerate growth as lower interest rates come into play.
“The stable outlook … reflects our assessment that the country’s excellent institutions, wealthy economy, and moderate public indebtedness will balance risks associated with high levels of external and private-sector debt over the next two years,” S&P said.
The agency stated that the ratings could be downgraded if the budget deficit fails to shrink as anticipated, leading to higher debt and interest expenses, accompanied by a decline in economic growth.
It reiterated its long-standing concerns about the persistently large current account deficit in New Zealand.
Improvements in managing government finances could result in a rating upgrade.
“Indications of this would include the general government deficit contracting to less than 3 percent of GDP and net general government debt or interest expenses falling on a structural basis to less than 30 percent of GDP and 5 percent of government revenues, respectively.”
Growth is expected to steadily improve, driven by strong exports, tourism, and the impact of lower interest rates boosting consumer spending, with the US 15% tariffs on New Zealand exports remaining manageable.
New Zealand’s rating is on par with a few European and Asian countries, as well as the US, and surpasses the UK and Japan.
However, it sits one level below Australia.