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NZ government upbeat despite credit rating downgrade

The downgrading of New Zealand's credit rating today is a reflection of global concerns about foreign debt, says the government.

The New Zealand economy is still on track to get back in the black, finance minister Bill English says, despite the double downgrading of the country's credit rating last week.

Ratings agencies Fitch and Standard and Poor’s both downgraded New Zealand’s long-term foreign currency rating on Friday to AA with a stable outlook from AA+ with a negative outlook.

Fitch cited concerns about our levels of external debt, while S&P said our fiscal position had been weakened by earthquake-related spending pressures.

But New Zealand retains the highest possible AAA rating, with a stable outlook, with Moody’s.

English said the agencies acknowledged the government had made progress in getting its own deficits and debt under control, despite the global financial crisis and substantial extra cost of the Canterbury earthquakes.

“Having inherited forecasts of permanent deficits and debt spiralling out of control, we’ve set a path back to surplus when most countries will still be in deficit and borrowing."

When asked by Guyon Espiner on TVNZ's Q&A programme what the government planned to do to win back the confidence of the credit rating agencies, he defended its fundamental policies as "credible".

"Of course we’re not ignoring what they say, but the plan that is involved – long-term investment in increasing our competitiveness, focusing on the productivity of the different sectors of New Zealand, changing the tax system, getting the government debt under control ... these are an approach the ratings agencies have endorsed.

"They have a different view than we do about where it will end up. We’re pretty positive about the plans. They’re a bit less optimistic."

He said interest rates around the world were continuing to fall but it was possible they would rise here.

"I think because of the progress that we’ve made, because the market sees us as having a credible path back to surplus and sound economic policy, there may be some upward pressure on rates, but bear in mind the interest rates currently are at a 45-year low."

Figures out on Thursday showed net international liabilities were 70 percent of GDP in the year to June, down from a peak of almost 86 percent two years ago and Budget 2009 forecasts of more than 100 percent, he said.

“Compared to other countries, New Zealand has come through the recession reasonably well. We’re one of only 19 countries still rated AAA by Moody’s and we’re now the only highly-rated country with a two notch gap between our ratings with Moody’s and Standard and Poor’s," he said on Friday.

“This reflects our unusual position of having relatively low public debt, but large private sector external debt, built up over several decades.”

English said it was vital to get on top of that debt by returning to surplus and exporting more to the rest of the world.