Budget 2021: Credit rating agencies Moody’s, S&P Global’s take on New Zealand’s fiscal position

The world’s biggest credit rating agencies have given their take on New Zealand’s Budget for 2021.

Moody’s Investors Service said the Budget highlighted continued improvements to the economic and fiscal outlook, as successful containment of Covid-19 had enabled a swift economic recovery.

“The stronger labour market, robust housing activity, and improvements in terms of trade support upward revisions to GDP growth, and in turn, Government revenue, compared with Treasury’s forecasts in December 2020,” Moody’s vice president Martin Petch said.

The stronger fiscal outcomes supported higher spending on wellbeing initiatives and ongoing infrastructure investment, he said.

“Overall, the outlook for narrower fiscal deficits will help to underpin New Zealand’s fiscal position as one of the strongest among Aaa-rated sovereigns,” Petch said.

S&P Global Ratings said the Budget confirmed the economy was recovering quicker than most advanced economies.

“This is consistent with our expectations that the economic and fiscal shock [of Covid-19] will be temporary, though debt levels will remain elevated for some time,” S&P said.

“Given the pace of recovery, we believe the Government’s credit metrics can withstand further negative shocks to the economy and its fiscal position at the current rating level,” S&P said.

S&P raised its long-term foreign currency rating on New Zealand to ‘AA+’ from ‘AA’ in February 2021.

“While the Government is targeting additional spending on housing affordability, climate change, and welfare, we believe the general Government deficit will narrow over the next few years,” S&P said.

However, the agency said a slower-than-expected Covid-19 vaccine rollout could leave the economy and Budget vulnerable to outbreaks and lockdowns, slowing the fiscal recovery.

“Border closures continue to weigh on migration as well as the tourism and higher-education sectors,” S&P said.

“Uncertainty over the reopening of international borders could affect the economy and how the Government manages potential outbreaks,” it said.

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