But the AA+ rating reflected New Zealand’s “advanced and wealthy economy, high governance standards, and robust policy framework”.
“These strengths are balanced by the economy’s vulnerability to external shocks given its size and openness, an elevated current account deficit, and high household debt.”
The Government’s committed to achieving its three fiscal goals – reducing spending as a proportion of GDP, returning the headline operating balance measure to surplus and bending the debt curve down, Finance Minister Nicola Willis says. Photo / Mark Mitchell
Fitch’s decision to put New Zealand’s AA+ long-term credit rating on negative outlook was a reminder why fiscal discipline was so important, Finance Minister Nicola Willis said.
Global economic volatility made the Government’s programme of fiscal consolidation more important than ever, Willis said in a statement this morning.
“Over the past two years, this Government has pursued a balanced fiscal strategy – lifting investment in frontline services like health, education, and law and order, while charting a credible path back to surplus.
“That has required hard decisions: $43 billion of savings across the last two Budgets, with further savings planned in Budget 2026.”
The Government was committed to achieving its three fiscal goals – reducing spending as a proportion of GDP, returning the headline operating balance measure to surplus and bending the debt curve down, Willis said.
“Treasury’s preliminary economic forecasts – prepared before the latest volatility in the Middle East – showed New Zealand’s economic recovery gaining momentum, with growth of around 3% by early 2027 and a corresponding improvement in revenue that would support a more positive fiscal outlook.”
Those forecasts would now need to be revised, she said.
“Energy market disruption adds real uncertainty, and that is precisely why careless spending is off the table.”
New Zealand’s debt levels influenced Fitch’s latest rating and outlook.
One of its key rating drivers for New Zealand was delayed debt decline, Fitch wrote.
“We forecast general government gross debt to rise to 56% of GDP in the fiscal year ending June 2027 (FY27) from 53.6% in FY25, and to only return to the FY25 ratio in FY30.
“This would be well above the outer year (FY27) forecast of 36.1% when we upgraded New Zealand in September 2022. The debt reduction will be driven by a large 2.8pp of GDP improvement in the primary balance by FY30.”
The authorities projected the net core crown debt-to-GDP ratio to reach 46.9% of GDP by FY29, above the 45.5% projection at the May 2025 fiscal update, they wrote.
Another rating driver was that fiscal consolidation had been further delayed.
The December 2025 fiscal update forecast that the Government’s key fiscal metric – operating balance before gains and losses excluding revenue and expenses of the Accident Compensation Corporation (OBEGALx) – would return to surplus in FY30, one year later than in the May 2025 fiscal update.
“This follows repeated delays in the target year since December 2022 under successive governments.”
The delays were because of weak economic growth since then and more persistent expenditure than anticipated, they wrote.
A near-term deficit rise, post-2026 election deficit reduction, Government assets and the economic recovery – Fitch expected GDP to expand by 2.8% this year and next, after weak growth of 0.2% last year – were also factors.
“The [economic] recovery will be driven by improving household demand, supported by the monetary easing since August 2024 and the continued strong performance of exports.
“Recent data also suggest the net outward migration over the past few years is reversing in response to, and supporting, the recovery.”
However, the Iran war posed some risks to the economy, given New Zealand’s “substantial dependence on energy imports”, Fitch wrote.
“Direct trade linkages to the Middle East are small, but inflationary effects and a broader global weakening could have a negative impact.”
Fitch gave New Zealand a “stable” outlook in August last year. Photo / Lionel Bonaventure, AFP
Monetary policy was also considered, and Fitch expected the Reserve Bank to increase the Official Cash Rate by the end of this year – although the Iran war could lead to earlier tightening.
The current account deficit had narrowed to 3.7% of GDP in 2025 from 4.7% in 2024 – well below the peak deficit of 9% in 2022, but much weaker than the “AA” category median surplus of 8% in 2025, Fitch wrote.
“Net external debt remains elevated, reflecting a structural savings-investment gap. We forecast net external debt of 51.4% of GDP in 2026, while the ‘AA’ median is in a net creditor position of 29% of GDP.”
Household debt risks, including household debt-disposable income and house prices, were also taken into account.
“Financial-sector risks are mitigated by prudent macroprudential policies and sound bank capitalisation.”
In August last year, New Zealand also held onto its AA+ credit rating from Fitch, but the agency warned that a slackening culture of fiscal responsibility, a more severe housing market correction, or an unemployment spike could see the rating reduced in future.
The outlook then was listed as “stable”, meaning the agency wasn’t putting the Government on notice of a downgrade.
In its report, Fitch raised a handful of concerns, including that the Government’s forecast return to surplus had been delayed again and Treasury’s forecasts showed most of the fiscal consolidation was back-filled to the period after the election.
Fitch praised National and Labour’s “strong longer-term fiscal record”, which included a “[c]ommitment to prudent fiscal policies across New Zealand’s political spectrum” as shown by periods of long fiscal consolidation after big shocks.