Ratings agency Moody’s has given a glowing review of Budget 2018 in its in-depth report published on Wednesday.
The report highlights the Government’s controversial debt target for praise. New Zealand currently has a Aaa (stable) rating from Moody’s.
“New Zealand's strong public finances provide greater fiscal flexibility to counter shocks than is the case for some other high-income and highly rated sovereigns,” said the report.
It also had praise for Governments past, saying their commitment and success at reducing debt lent credibility to the target.
Moody’s said it expected solid growth demand in the agriculture, tourism and education sectors as well as robust investment in housing and infrastructure to lead to real GDP growth of 2.5 percent in 2018. It also has a positive outlook in the long term, saying New Zealand’s higher population growth and the slower ageing of that population would increase potential output in New Zealand compared with other Aaa-rated countries.
While expressing support for the Government’s debt track, the report will add fuel to the argument that the Government should consider loosening its Budget Responsibility Rules to invest in infrastructure.
The Government has said it intends to reduce the debt-to-GDP ratio to 20 percent by 2020/21 so that it is well-placed to weather any unexpected shocks.
But earlier this month Moody’s sovereign risk analyst for New Zealand, Matthew Circosta, told Newsroom that New Zealand looked like it could adjust to shocks with its current debt levels.
"Moderate gross central Government debt … affords the Government higher fiscal room than many other similarly rated high-income sovereigns to counter shocks,” Circosta said.
He said New Zealand’s fiscal position was strong compared with its peers, and continued fiscal and monetary discipline would give the economy “capacity to adjust to shocks and keep its credit metrics consistent with a Aaa rating even in the event of such shocks materialising”.