Latest / Best of Business / Thomas Rookmaaker: Fitch Head of Asia-Pacific Sovereigns explains why NZ's credit rating was downgraded

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Thomas Rookmaaker: Fitch Head of Asia-Pacific Sovereigns explains why NZ's credit rating was downgraded · Best of Business

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  Speaker 2: Seven past six. Now, New Zealand's international credit rating is
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  Speaker 2: reaching something of a tipping point. So far this year,
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  Speaker 2: both Moody's and Fitch have downgraded the country's financial outlook
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  Speaker 2: to negative. Fitch's top analysts are in the country at
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  Speaker 2: the moment. We've got one of them. Thomas Rookmaker, is
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  Speaker 2: Fitch's head of Asia Pacific sovereigns. Hi, Thomas, Hey, what
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  Speaker 2: is the thing that you're worried about is in our
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  Speaker 2: country's debt?
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  Speaker 3: Well, So in March we changed the outlook on New
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  Speaker 3: Zealand's novel at Glass rating to negative from stable. And yeah,
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  Speaker 3: the reason for it is basically that a substantial reduction
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  Speaker 3: of government that is becoming more and more difficult to envisage.
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  Speaker 3: Fiscal consolidation has been delayed in the past few years,
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  Speaker 3: and New Zealand has faced a number of shocks. Now
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  Speaker 3: the latest energy shock from the war in the Middle
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  Speaker 3: East and general government that the GDP has risen substantially
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  Speaker 3: over the past few years, by almost thirty percentage points
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  Speaker 3: since twenty nineteen. This used to be well below the
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  Speaker 3: median of New Zealand's spears in the double A category,
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  Speaker 3: but now it's above the peer medium, which indicates that
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  Speaker 3: a relative strength has basically become a weakness.
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  Speaker 2: Okay, so how much would you see? What would you
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  Speaker 2: like to see? How di it retarded by for you
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  Speaker 2: to feel comfortable.
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  Speaker 3: Yeah, it's more about, yeah, the trajectory and the basically
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  Speaker 3: confidence in a reduction of the government debt to GDP
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  Speaker 3: over the median term. So yeah, to what extent will
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  Speaker 3: there be policies after the elections that would give us
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  Speaker 3: confidence that fiscal consolidation will take place and the government
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  Speaker 3: debt to GDP ratio would fall?
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  Speaker 2: How do you rate the chances? I mean, I can't
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  Speaker 2: see anything, Thomas. This government has been in power for
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  Speaker 2: three years, has continued to ratchet up the debt has
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  Speaker 2: not really indicated any kind of fiscal consolidation and certainly
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  Speaker 2: no paying down to the debt. And I cannot see
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  Speaker 2: anything that will realistically become government policy after the election
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  Speaker 2: that will bring down the debt. So if you take
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  Speaker 2: that all into account, what are the chances you think
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  Speaker 2: that we actually get downgraded next year?
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  Speaker 3: Yeah, Well, the negative outlook indicates that there is a
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  Speaker 3: significant chance. You know, New Zealand has a strong pre
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  Speaker 3: pandemic track record of fiscal consolidation and debt reduction. You
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  Speaker 3: may recall the uh, yeah, you know that the fiscal
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  Speaker 3: spending following the earthquake in christ Church and yeah, subsequently
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  Speaker 3: the fiscal consolidation that led to yeah, too relatively low
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  Speaker 3: government debt. Yeah, but but yeah, the main question is
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  Speaker 3: to what extent that has structurally changed.
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  Speaker 2: Well, I'm locking in a downgrade next year, would I
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  Speaker 2: be wrong?
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  Speaker 3: Well, the outlook is negative, so it indicates that that
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  Speaker 3: there is a chance of a downgrade.
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  Speaker 2: Yeah, thank you, Hey, I appreciate it. Thomas Rukmarker Fitch,
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  Speaker 2: head of Asia Pacific Sovereigns.
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