S&P, Fitch downgrade New Zealand’ s credit rating

Two of three major ratings agencies have downgraded New Zealand's credit rating as concerns rise over high debt burdens in developed nations.

New Zealand's rating was downgraded from AA+ to AA by Standard & Poor's yesterday.

Thanks to relatively low levels of government borrowing, New Zealand enjoyed strong sovereign credit ratings even though it had high private debt. But the ratings agencies have become more cautious after the government's finances came under increased strain following an earthquake and weak economic growth.

The agencies have now hardened their stance on all forms of debt in the wake of the global financial crisis. Countries like Ireland, which were forced to bail out banks amid the  global recession, have demonstrated how private debt could easily become a problem for the government.

Fitch's review said New Zealand's high level of external debt was "an outlier" among comparable developed nations, a situation which would likely continue as the current account deficit was expected to increase. A current account deficit indicates that a country was spending in excess of its earnings and that it was relying on borrowing to make up the gap.

Standard & Poor's cited increased spending by the government in the wake of February's earthquake that left 181 people dead and devastated the centre of Christchurch, New Zealand's second biggest city for the downgrade.