Fitch flags fiscal risks; Willis warns higher borrowing costs
Finance Minister Nicola Willis (pictured) has welcomed Fitch Ratings’ confirmation of New Zealand’s AA+ credit rating with a stable outlook, highlighting the importance of fiscal responsibility for households and businesses.
“At the moment New Zealand is borrowing overseas to continue providing good public services while we work to rebuild the economy and public finances,” Willis said.
She noted that New Zealand’s long-standing reputation for prudent fiscal management has helped keep borrowing costs lower.
“Historically, New Zealand governments have been able to borrow at reasonable rates because of their reputation for being responsible managers of public money, but that is not something that should be taken for granted,” Willis said in a statement.
Fitch issues warning on fiscal policy
The finance minister stressed that Fitch’s assessment carried a cautionary note for policymakers.
“In the nicest possible language, Fitch’s commentary contains a warning for New Zealand,” Willis said.
“Fitch says New Zealand’s rating is underpinned by the government’s strong commitment to fiscal consolidation and an expectation that debt as a percentage of GDP will move to a downward path.
“However, Fitch warns that ‘evidence of a weakening in the culture of fiscal commitment to fiscal responsibility would affect creditworthiness’.”
Risks of higher borrowing
Willis linked the warning to proposals from opposition parties, arguing that excessive borrowing could threaten the nation’s credit standing.
“That is Fitch telling us that borrowing a lot more, as opposition parties are proposing, would lead to a credit downgrade,” she said. “That would increase the cost of government debt and also have a flow-on effect to the cost of household and business borrowing, as New Zealand would be seen as a more risky country to lend to.”
According to Westpac, while the economy is forecast to grow 2.4% in 2025 and 3.1% in 2026, fiscal credibility remains critical.
“There’s a non-trivial risk that credit rating agencies might stop giving us the benefit of the doubt, increasing the stakes for fiscal management in coming years,” chief economist Kelly Eckhold said.
Commitment to surplus and growth
Willis reiterated the government’s focus on rebuilding the fiscal position while maintaining support for public services.
“That is why this government is committed to returning the books to surplus while continuing to invest in the public services New Zealanders need and shifting the economy onto a stronger growth path,” she said.
“Doing so requires some difficult choices, but the alternative is increasing costs for Kiwi households and businesses.”
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
