NZ ‘positioned well’ for recovery

Credit ratings agency Moody’s says the country’s low government debt puts it in a good position to navigate the recovery from Covid-19 disruption.

The agency has reaffirmed New Zealand’s Aaa rating.

Moody’s said the Government had a large degree of fiscal headroom to increase spending in the coming years to support the recovery. While this would lead to higher debt and fiscal deficits, Moody’s said the commitment to responsible fiscal management meant this was manageable.

At 27.8 per cent of gross domestic product in 2019, New Zealand’s debt burden was lower than that of comparable countries, Moody’s said.

Government debt hit a high of 37 per cent in 2012 but the Government maintained fiscal surpluses between 2016 and 2019, Moody’s noted in its report.

That was in contrast with Australia, where the debt burden had increased threefold over the past decade.

‘‘The [New Zealand] Government has promptly deployed its fiscal capacity to buffer the impact of the shock,’’ Moody’s said.

‘‘We expect the economy to remain resilient in the face of shocks, given its trade openness, diverse and competitive agricultural export base, flexible labour and product markets, high wealth levels and supportive demographics, driven by robust net immigration. These attributes underscore New Zealand’s medium-term growth potential of around 2.5 per cent to 3 per cent, higher than many advanced economy Aaa-rated peers.’’

Moody’s said the New Zealand Treasury had a strong record of managing shocks and was expected to demonstrate fiscal discipline over the long term.

It comes after a report from another ratings agency, Fitch, said New Zealand was likely to record a deficit of 4.8 per cent of GDP in the year to June, but was in an overall healthy fiscal position.

Finance Minister Grant Robertson welcomed the Moody’s report. ‘‘New Zealand’s low government debt compared to the rest of the world puts us in a strong position to invest in the economy to create jobs and lift incomes as we recover from the impact of Covid-19,’’ he said.

‘‘We can do this because we have managed the books carefully . . . Just as the rest of the world is looking to New Zealand’s worldleading public health response, we also welcome acknowledgement of our world-leading fiscal position and ability to invest for the recovery.’’

‘‘We expect the economy to remain resilient in the face of shocks.’’

Moody’s