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NZ budget's strong economic, fiscal outlooks are credit positive: Moody's

Friday, May 27, 2016 - 12:59
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Moody's Investors Service said on Friday that the strong economic and fiscal outlooks in New Zealand's budget are credit positive.

[WELLINGTON] Moody's Investors Service said on Friday that the strong economic and fiscal outlooks in New Zealand's budget are credit positive.

Moody's, which rates New Zealand at triple A, noted the budget shows higher government revenue and surpluses than previously forecast and a decline in the government's debt ratios.

On Thursday, the government said it now expects to post a NZ$668 million (S$619.64 million) surplus in the year to June 2016, a sharp turn from a deficit of NZ$401 million forecast in the December half-year economic and fiscal update.

The government is also forecasting a NZ$719 million surplus in the year to June 2017, versus a prior forecast of NZ$356 million. It is also more optimistic about future surpluses.

Moody's said it considered the budget projections to be reasonable, but not without risks.

Given that much of the fiscal improvement is based on solid economic growth, "the main risks come from failure of the economy to record such gains," it said.

It noted there could be a reversal in net migration while tourism could be impacted if the New Zealand dollar were to strengthen.

Other risks include housing prices, household debt and lower dairy prices for an extended period, it said. Difficulties restraining expenditure over a multi-year horizon pose a further risk.

"The rapid increase in population puts pressure on spending for social services and infrastructure," it said.

New Zealand has seen an unprecedented wave of net migration, partly due to Kiwis returning home from Australia as the economy cools across the ditch.

The unadjusted annual net gain of migrants reached 68,100 in the April 2016 year, a new high, with the population of 4.7 million now growing at its fastest pace in over 40 years.

On Thursday the government said it was bringing forward NZ$600 million of spending that had been earmarked for the following year.

"Population growth, boosted by Kiwis returning home, is increasing demand for public services, so we are investing in infrastructure now," including in the transport sector, finance minister Bill English said.

REUTERS