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Related Issuers
Rating Action:

Moody's affirms New Zealand's Aaa issuer rating; maintains stable outlook

24 Mar 2017

Singapore, March 24, 2017 -- Moody's Investors Service has today affirmed Government of New Zealand's Aaa issuer rating. The stable outlook is maintained.

The factors driving the rating affirmation and stable outlook are Moody's expectations that:

(1) New Zealand's economic resilience remains very high, supported by strong growth;

(2) The country's institutional strength remains similarly high, with proactive implementation of policies likely to continue to mitigate external and domestic vulnerabilities;

(3) And the country's very strong fiscal position compared to peers provides high shock absorption capacity.

New Zealand's Aaa senior unsecured debt rating, the (P)Aaa senior unsecured MTN rating, the local currency other short-term and foreign currency commercial paper ratings at Prime-1 (P-1) are also affirmed.

New Zealand's long-term local and foreign-currency bond and deposit ceilings remain at Aaa. The short-term foreign-currency bond and deposit ceilings remain at Prime-1 (P-1).

RATINGS RATIONALE

RATIONALE FOR RATING AFFIRMATION AT Aaa

FIRST DRIVER -- VERY HIGH ECONOMIC RESILIENCE

We expect New Zealand's economy to be among the fastest growing Aaa-rated economies in coming years. Strong population growth, including through migration, bolsters the economy's potential. As incomes in China and the rest of Asia continue to rise at a solid pace, demand for New Zealand's products and services, including dairy, tourism and education, will also continue to support growth.

The economy is small and open, with a high dependence on agriculture exports to drive growth and incomes and reliance on foreign funding. However, in the event of shocks, the economy responds swiftly and positively to a weaker exchange rate and lower interest rates, as seen in recent years. Exchange-rate and interest-rate sensitive sectors such as tourism and construction generate economic activity and jobs to support income.

Longer term, New Zealand's potential GDP growth is higher than that of many Aaa-rated sovereigns. Demographic trends are supportive to medium-term growth compared to peers given robust immigration trends and slower aging. New Zealand ranks highest in the world for ease of doing business, according to the World Bank, another factor supporting its robust growth potential.

SECOND DRIVER -- PROACTIVE INSTITUTIONS WITH HIGHLY EFFECTIVE POLICYMAKING DELIVERING FISCAL AND FINANCIAL SECTOR STABILITY

New Zealand has very strong institutions, characterised by a very high degree of policy effectiveness. It has a proactive and credible central bank with a strong track record on monetary and financial stability. Its fiscal institutions have an equally strong record of managing shocks through effective fiscal policy.

For example, compared with many other central banks in advanced economies, the Reserve Bank of New Zealand (RBNZ) has engineered a fair amount of space to deploy in support of monetary policy. As the regulator of banks in New Zealand, the RBNZ is taking proactive measures to mitigate banking sector risks. The effectiveness of banking sector regulation is shown in our assessment of banks' financial strength.

The achievement of a budget surplus in 2014-15, in line with the budget projections three years earlier, highlights the very high level of policy effectiveness. Fiscal metrics improved swiftly in the aftermath of the 2008 recession and recent earthquakes and we expect them to continue to do so, with fiscal management remaining strong in coming years.

More broadly, New Zealand's credit profile is characterised by external vulnerability risks as a result of its large reliance on external financing, and by banking sector risk related to elevated household debt. While we think that the likelihood of these risks crystallising is low, they are somewhat more elevated than corresponding risks in many other Aaa-rated sovereigns.

Nevertheless, the very high strength of the institutions and, relatedly, our expectation that any fiscal or economic policy response would be proactive and effective, help mitigate these risks.

For example, the central bank's tightening in lending restrictions is working to cool the housing market, while further pre-emptive tightening measures are likely to be introduced to diminish the probability and reduce the negative consequences of a potential downturn in housing.

THIRD DRIVER -- VERY HIGH FISCAL STRENGTH OFFERS GREATER ABILITY TO RESPOND TO SHOCKS

New Zealand's economy is vulnerable to various shocks. Over the past decade, these shocks manifested in the 2008 global financial crisis, the 2011 Canterbury earthquake, the downturn in commodity prices from 2014-2016 and more recently, the Kaikoura earthquake.

The government's efforts over many years to preserve strong public finances provides it ample room to pursue expansionary fiscal policy to buffer the economy from any potential future shocks, which could stem from another natural disaster, a housing market correction or a sharp fall in global trade.

Moderate government debt levels around 30% of GDP give the government the capacity to implement stimulus policies, if required, to shore up economic growth. Overall, we expect increasing budget surpluses to help reduce gross government debt toward 28% of GDP in coming years -- significantly lower than the median for Aaa-rated sovereigns. With government debt at moderate levels, New Zealand has higher fiscal flexibility than in many other high-income economies.

RATIONALE FOR STABLE OUTLOOK

The stable outlook is anchored by our expectation that New Zealand will maintain strong fiscal and monetary discipline that provides the economy and financial system capacity to adjust to shocks and keeps its credit metrics consistent with a Aaa rating even in the event of such events materialising.

While the country's economy is exposed to a number of possible shocks, broad consensus among both major political parties on fiscal objectives and a proactive central bank that is vigilant to financial stability risks supports very high policy credibility and effectiveness that gives New Zealand's policymakers effective tools to shoulder downside scenarios.

WHAT COULD CHANGE THE RATING DOWN

As implied by the stable outlook, a negative rating action is not likely in the near term. However, New Zealand's Aaa rating could move down over the medium term if a large external or domestic shock, perhaps stemming from a natural disaster, a housing market correction or a sharp fall in global trade, were to result in a sustained upward trend in government debt that was not reversed in the following years. Such an outcome would imply diminished fiscal and institutional strength, as well as undermining the health of the banking system by damaging access to external finance.

GDP per capita (PPP basis, US$): 36,136 (2015 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 3.9% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1.3% (2016 Actual)

Gen. Gov. Financial Balance/GDP: 0.1% (2016 Estimate) (also known as Fiscal Balance)

Current Account Balance/GDP: -2.7% (2016 Actual) (also known as External Balance)

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 22 March 2017, a rating committee was called to discuss the rating of the New Zealand, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutional strength/ framework, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has not materially changed. The issuer has become increasingly susceptible to event risks.

The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Matthew Circosta
Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Atsi Sheth
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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