Peter Nicholl
New Zealand’s sovereign credit rating has been in the news lately as two of the three main international credit rating agencies have put New Zealand’s AAA credit rating on what is called ‘negative watch’.
Reserve Bank governor Anna Breman with The News columnist Peter Nicholl, a former deputy governor. Photo: Kelly Hodel, Waikato Times.
They haven’t reduced the credit rating – yet. But it’s a warning that they are watching New Zealand economic developments closely and the next change in the rating is likely to be downwards. The third major rating agency, Standard and Poors, has had New Zealand’s foreign currency rating at AA+, one notch down from AAA, since 2022.
Most countries in the world have one or more sovereign credit ratings. They’re necessary to be able to borrow on international capital markets. If a country doesn’t have a sovereign credit rating, it will also be difficult for companies from the country to borrow internationally. There are only a few countries that have no rating: countries like North Korea and Sudan. That’s not a list a country wants to be on. That was why when I was governor of the Central Bank of Bosnia and Herzegovina, I arranged for the country to get its first sovereign credit rating even though I knew the country wouldn’t get a rating that was regarded as ‘investment grade’. To be in the position of having no rating was even worse.
Ratings run from AAA through AA, A, BBB, BB, B, CCC to D. A rating of BBB or higher is regarded by the international markets as ‘investment grade’. A rating in the C or D categories is highly risky or default.
Our rating has slipped out of the top tier of about 10 countries, including Australia. Our ratings are equal to those of the United States and above those of the United Kingdom. It is not all bad news.
But the trajectory of our ratings and the concerns raised recently by the rating agencies should be a worry. The rating agencies have given us a warning. We have received other warnings recently too including from our own Treasury and the International Monetary Fund. The forecasts of the future trends in our fiscal deficits and debt levels if there aren’t significant policy changes should be alarming. If they occur, or anything remotely like them occurs, our ratings will certainly dive.
This would mean that at the same time as we need to do more borrowing overseas, the cost of that borrowing will rise, and it will become harder to find organisations willing to lend. This may sound extreme, but New Zealand did experience this reluctance of lenders in 1984. We are not immune to such sentiment.
The 2026 election campaign hasn’t started in earnest yet. But to date I’ve seen little from our politicians to show they are alarmed or even concerned by these dismal projections of our deficit and debt levels if we stick to current policies.
That will need to change, and change quickly and strongly, or we won’t keep our current sovereign credit ratings for long.
