Moody's warns Govt about debt

Credit rating agency Moody's has slipped in and out of Wellington on a routine visit which included a friendly warning to the Government about the long-term state of the books.

Moody's currently rated New Zealand "AAA" - the top rating - with a stable outlook and told ministers that was safe for the meantime, but long-term debt projections were of concern.

Two other agencies, Fitch Ratings and Standard and Poor's, have recently warned that New Zealand runs the risk of a downgrade due to its deteriorating fiscal outlook.

Any downgrading of credit ratings could push interest rates up not only for the Government, but for the New Zealand financial sector and the public.

Moody's was told that the Treasury's worse-case scenario of the budget deficit growing to 4.5 per cent of GDP and Government gross debt at 29 per cent of GDP over the next three years had become more likely.

If anything the latest figures were pointing to the most pessimistic scenario late last year now looking optimistic.

In Moody's assessment New Zealand's economy lacked diversification and was likely to take more time to adjust and rebound if its economic model was effectively dented.

Ministers were warned that New Zealand's rating remained largely untested because it started from a robust position, but if long-term debt levels became a reality then the rating would be at risk.

- NZPA