26 May 2009

PM confident credit rating will not be lowered

4:21 pm on 26 May 2009

Prime Minister John Key remains confident that once international agencies see the Budget they will not downgrade New Zealand's rating.

Credit rating agency Standard & Poor's on Monday reiterated its warning to the Government to come up with a plan to lower debt levels, or risk a downgrade.

The international agency's comments come as the National-led Government prepares to deliver its first Budget since 1999 on Thursday.

John Key says the Budget will show the Government getting its debt under control, while at the same time maintaining existing entitlements.

Mr Key believes the Government's AA+ credit rating will be unchanged after the Budget.

Deutsche Bank chief economist Darren Gibbs, agrees that the Government will avoid a costly credit rating downgrade. He says the Budget will contain a strategy to bring Government debt under control, including deferring tax cuts and limiting spending growth.

Standard & Poor's warning

Standard & Poor's New Zealand analyst, Kyran Curry, said on Monday the Government has five years to turn its deficits into surpluses.

But S&P global head of sovereign ratings David Beers told Radio New Zealand that he is reluctant to set a deadline for the Government to have turned around its books.

Mr Beers said the Budget will need to demonstrate that the Government has a plan to bring its debt under control in the medium term.

Mr Beers is worried about New Zealand's overall indebtedness, which he says leaves banks exposed if foreign creditors cut off their supply of credit.

This could mean big losses for the Government from its guarantee schemes.