International credit rating agency Fitch Ratings isn’t perturbed by the government’s adoption of new well-being measures, which it sees as shifting spending priorities rather than undermining fiscal prudence. 

Fitch yesterday affirmed New Zealand’s long-term foreign currency issuer default rating at ‘AA’ and retained a stable outlook, saying high governance standards, a commitment to prudent fiscal management and a credible policymaking framework underpinned its view. 

While the government’s KiwiBuild and families income packages are set to drive smaller surpluses in the near-term, the government’s coffers will improve in the June 2020 fiscal year, it said. 

“The New Zealand Treasury’s new Living Standards Framework in conjunction with the government’s ‘Well-being Budget’ could shift spending priorities, but will not impact underlying fiscal prudence in Fitch’s view,” the agency said. 

The New Zealand government wants to use a broader array of measures to gauge the success of its programmes. Finance Minister Grant Robertson will unveil his first ‘well-being budget’ in May, although he’s acknowledged it will be an evolving process given the gaps in information needed for some measures. 

December’s budget policy statement showed the government’s well-being priorities this year will be on policies aiding the transition to a low-emissions economy, ensuring access to and the development of digital technology, lifting incomes, skills and opportunities for Maori and Pacific people, reducing child poverty, and mental health initiatives. 

Prime Minister Jacinda Ardern touted the framework during her trip to the World Economic Forum in Davos, Switzerland last month. The OECD also has a specific work programme to measure well-being. 

The opposition is more sceptical about the framework. Finance spokeswoman Amy Adams last week called it “an attempt at slick branding” and covering up bad economic policies. 

Fitch sees New Zealand’s economy growing 2.8 percent and 2.7 percent in the 2019 and 2020 financial years, supported by fiscal stimulus, it said. 

That’s in line with a forecast by Standard & Poor’s, which yesterday affirmed New Zealand’s ‘AA’ sovereign rating, and upgraded the outlook to ‘positive’ if Robertson has surpluses available to him in the early 2020s that give him a bigger fiscal buffer. S&P didn’t see the coalition government’s policies affecting the medium-term fiscal position

Fitch noted New Zealand’s low level of government debt as providing a buffer to economic shocks and natural disasters, and said the government’s target to reduce net debt to 20 percent of gross domestic product was a sound policy anchor. 

Still, Fitch said the country’s high level of external debt and elevated household debt were areas of weakness in New Zealand’s credit profile. 

New Zealand’s Debt Management unit sold $200 million of 2025 government bonds yesterday, attracting $871 million of bids. The notes pay annual interest of 2.75 percent, and were sold at an average yield of 1.91 percent. 

The yield on New Zealand’s 10-year government bond was recently at 2.235 percent, the lowest since mid-2016. Bonds rallied yesterday after investors pushed out their expectations for higher US interest rates on a more dovish Federal Reserve policy statement. New Zealand’s benchmark government bond yield is 40 basis points below that on US 10-year Treasuries. 

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