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
