The second-to-top mark, reinstituted in early 2021 after the pandemic, is based on expectations the deficits will be narrowed, and the economy will pick up growth as lower interest rates take effect.
“The stable outlook … reflects our assessment that the country’s excellent institutions, wealthy economy, and moderate public indebtedness will balance risks associated with high levels of external and private-sector debt over the next two years,” S&P said in a commentary.
It said the ratings could be lowered if the budget deficit did not narrow as expected, which would lift debt and interest costs, and there was a fall in economic growth.
It repeated longstanding misgivings about the size of New Zealand’s perennial current account deficit.
But conversely, progress in tackling the state of government finances might lead to an upgrade.
“Indications of this would include the general government deficit contracting to less than 3 percent of GDP, and net general government debt or interest expenses falling on a structural basis to less than 30 percent of GDP and 5 percent of government revenues, respectively.”
It said growth should gradually improve on the back of strong exports, tourism, and the effect of falling interest rates on consumer spending, while US 15 percent tariffs on New Zealand exports were manageable.
New Zealand’s rating matches that of a handful of European and Asian countries, and the US, is better than those of the UK and Japan, but is a notch lower than Australia.
Fitch Ratings reaffirmed New Zealand’s AA+ rating in August, and the other major firm Moodys rates the country with the top notch AAA.
The international ratings of the three major agencies influence the price and availability of overseas loans.
