KEY POINTS:
Standard and Poor's has warned of a possible downgrade to New Zealand's credit rating, citing the country's deteriorating balance of payments and fiscal outlook.
Though it reaffirmed the existing ratings, it has revised the outlook for the foreign currency rating from stable to negative.
"The negative outlook on the foreign currency rating reflects the likelihood of a rating downgrade if external imbalances begin to pressure the country's investment, growth and fiscal performance," S&P analyst Kyran Curry said.
New Zealand ran a current account deficit of $15.5 billion in the year ended September, equivalent to 8.6per cent of GDP.
Meanwhile, after 14 years of fiscal surpluses, a string of deficits and mounting Government debt are forecast.
Though such deficits were not uncommon, market confidence might wane until policymakers articulated a plan for medium-term fiscal consolidation, Curry said.
The next Budget would be key, he said. Only a credible medium term fiscal plan, combined with signs the country's external imbalances were easing, could avert a rating downgrade.
Finance Minister Bill English said that while the current account deficit was large and had been growing, it was likely to narrow somewhat in the next few years.
"In the meantime, the Government is committed to the kind of fiscal policy consolidation that Standard & Poor's has referred to," English said.
"In that regard, any calls for further fiscal stimulus need to be weighed up against the consequences of taking on further debt."
