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Fitch: NZ Fiscal Consolidation Intact Despite Lower Dairy Prices
December 17, 2014 / 9:58 AM / 3 years ago

Fitch: NZ Fiscal Consolidation Intact Despite Lower Dairy Prices

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, December 17 (Fitch) A push-back in the government's projected timeline to achieve a fiscal surplus does not significantly affect New Zealand's credit profile, says Fitch Ratings. The changes in the fiscal projections, as indicated in the Treasury's Half-Year Economic and Fiscal update (HYEFU), are relatively small, and the commitment to fiscal consolidation continues to strengthen the resilience of the credit profile. As such, the new projections do not change Fitch's Positive Outlook on New Zealand's 'AA' Foreign Currency and 'AA+' Local Currency ratings. In the HYEFU, released on 16 December, the government highlighted a steep fall in dairy prices by close to 50% since February as a key factor which will result in significant declines in export revenues. In addition to slower-than-expected price growth, this will contribute to smaller-than-expected tax revenues - and, notably, the government is now projecting a fiscal deficit in FY15 after originally planning for a surplus. This represents a deterioration of the short-term fiscal outlook, although the actual change in expectations is small. The original budget called for a Total Crown operating balance before gains and losses (OBEGAL) FY15 surplus of 0.2% of GDP. This had already been adjusted down to 0.1% in the August Pre-election Economic and Fiscal Update; while the deficit expectation is 0.2% of GDP in the most recent update. Furthermore, the emphasis on fiscal consolidation remains, which was an important contributing factor for Fitch's Positive Outlook. Fiscal surpluses are still forecast for FY16 onward, starting with a small surplus of 0.2% of GDP and rising to 1.4% by FY19. Moreover, Fitch believes there is a broad political consensus in favour of fiscal consolidation. The worsening terms of trade linked to the fall in dairy prices will lead to a widening of the current account deficit, especially as economic activity is likely to remain strong. The terms of trade are not likely to recover to previous highs any time soon, and the fiscal stance alone will not plug the savings/investment gap. Hence, New Zealand's weak external balances - including its current account deficit, reliance on foreign capital and net external indebtedness - should remain as a credit weakness. Notably, the net external debt, forecast to rise above 70% of GDP by 2015, is already the highest as a ratio of GDP among all sovereigns rated 'A', 'AA' or 'AAA'. As a result, New Zealand's credit will continue to be sensitive to a possible further terms-of-trade shock. Contacts: Thomas Rookmaaker Director Sovereigns +852 2263 9891 Fitch (Hong Kong) Limited 2801 Tower Two, Lippo Centre 89 Queensway Hong Kong Justin Patrie Senior Director +65 6796 723 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Leni Vu, Sydney, Tel: +61 2 8256 0326, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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