Fitch Ratings downgraded its outlook for New Zealand’s credit rating to “negative” on Wednesday, citing concerns over the country’s growing government debt and delays in fiscal consolidation. The agency affirmed the country’s AA+ rating, but warned that a substantial reduction in debt was becoming increasingly challenging to achieve.
The move prompted a swift response from New Zealand Finance Minister Nicola Willis, who characterized the outlook change as a “reminder of why fiscal discipline is so important.” Willis emphasized the government’s commitment to its fiscal goals: reducing spending as a share of GDP, returning to surplus, and lowering debt levels.
According to Fitch’s report, New Zealand’s general government debt-GDP ratio has risen significantly over the past six years, impacted by a series of economic shocks. The agency forecasts the ratio to increase to 56% of GDP in the fiscal year ending June 2027, up from 53.6% in fiscal year 2025. This trajectory contrasts sharply with a previous forecast of 36.1% in September 2022.
Willis highlighted the steps already taken by the current government to address the fiscal situation, citing $43 billion in savings across the last two budgets, with further savings planned for the upcoming Budget 2026. She acknowledged, however, that global economic uncertainty, particularly recent disruptions in the Middle East energy markets, could complicate efforts to improve the fiscal outlook.
“Treasury’s preliminary economic forecasts…showed New Zealand’s economic recovery gaining momentum, with growth of around 3% by early 2027,” Willis stated. “Those forecasts will now need to be revised. Energy market disruption adds real uncertainty, and that is precisely why careless spending is off the table.”
Fitch noted that New Zealand remains an “advanced and wealthy economy” with “high governance standards and a robust policy framework.” However, the agency also pointed to the country’s vulnerability to external shocks, its elevated current account deficit, and high levels of household debt as balancing factors.
The report indicated that the government’s operating balance before gains and losses, excluding accident compensation corporation revenue and expenses, is now expected to return to surplus by fiscal year 2030 – a year later than previously forecast. Fitch also expects the OBEGALx deficit to widen to 3% of GDP in fiscal year 2026, before improving to a 0.4% surplus by fiscal year 2030.
Fitch suggested that strengthened confidence in fiscal consolidation could lead to a revision of the outlook back to “stable.” A significant decline in both public and net external debt, coupled with increased resilience against external shocks, could potentially result in an upgrade. The agency also flagged risks associated with the conflict involving Iran, noting New Zealand’s substantial reliance on energy imports and the potential for inflationary effects and broader global economic weakening.
The Reserve Bank of New Zealand is expected to increase the Official Cash Rate by the end of the year, although the situation in Iran could prompt earlier tightening of monetary policy, according to Fitch.
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