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Yahoo! My Yahoo! Mail Yahoo! Search Search: Sign InNew User? Sign Up News Home - Help Navigation Primary Navigation Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Secondary Navigation Singapore Asia Pacific World Search Search: RPT-WRAPUP 2-NZ wins S&P reprieve after belt-tightening budget Reuters - Friday, May 29 For more stories related to the New Zealand budget see [ID:nSP402287] ADVERTISEMENT * S&P raises NZ outlook to stable from negative * NZ forecasts 2009/10 operating deficit at 4.4 pct of GDP * NZ estimates 2009/2010 bond issuance at NZ$8.5 billion * NZ gross debt seen peaking at 43 pct of GDP in 2016/17 * Moody's keeps rating stable By Gyles Beckford WELLINGTON, May 28 - New Zealand won a surprise reprieve from a credit rating downgrade on Thursday after moving to contain its budget deficit, partly by scrapping tax cuts, in the midst of the worst recession in 30 years. Standard & Poor's, which warned earlier this year it could downgrade New Zealand, revised the outlook on the AA-plus rating to stable from negative, in a vote of of confidence in Finance Minister Bill English's debt reduction plan. Moody's Investors Service kept its ratings outlook stable. The S&P statement triggered a rally in the New Zealand dollar <NZD=>, which had initially fallen on fears the budget could make a ratings downgrade more likely at a time when investors were questioning the creditworthiness of the U.S. government. Announcing the budget for the coming year, English scrapped tax cuts and raised borrowing to plug the biggest cash deficit in 25 years, saying he had a "credible plan" to pull the government out of debt. He still said the country would run deficits for a decade and nearly double debt. His plan focused on limiting expansion of the operating deficit, which strips out capital spending and revaluations of assets, to 4.4 percent of GDP in 2009/10 and 5.1 percent of GDP and 5 percent of GDP in each of the following fiscal years. "The successful delivery of this strategy--returning the operating position to surpluses over the cycle and maintaining low debt--is consistent with maintaining the 'AA+' foreign currency rating on New Zealand," said credit analyst Kyran Curry, of Standard & Poor's. CURRENT ACCOUNT DEFICIT New Zealand fears a ratings downgrade would deter investment in the bond market at a time when it needs to attract capital to finance a current account deficit that hit nearly 9 percent of GDP last year. That is twice as much as the deficit in triple-A rated Australia and more than three times that of AA-plus rated Ireland, which nearly had its banking system wrecked by the global financial crisis. The New Zealand dollar, which had fallen after the budget, climbed to $0.6180 <NZD=D4> on the S&P news from about $0.6140 shortly beforehand, and was up 0.5 percent on the day. "By and large the whole intention of today's budget was to convince the rating agency they shouldn't downgrade us. So it was mission accomplished."said Stephen Toplis, head of market research at Bank of New Zealand. The plan to contain the operating deficit was broadly in line with what analysts had expected. "We're confident that we have struck the right balance between supporting the economy in the short term and doing that by borrowing money, with a credible plan to get on top of that debt," English told reporters. English had got the market worried when he forecast that gross debt, around 25 percent of GDP this fiscal year, would peak at 43 percent of GDP in 2016/17, about four years later than analysts had expected [ID:nSP461838] New Zealand's government has relatively little debt compared to the size of economy. Government net debt was forecast to hit about 15 percent of GDP in 2010, about a quarter of the expected 2009 levels for the United Kingdom, which S&P threatened last week to downgrade, and the United States. The U.S. Treasuries market tumbled on Wednesday on fears Washington could lose it triple-A rating. S&P said the main question hanging over New Zealand's rating was the stability of its mostly Australian-owned banks, which are carrying the burden an explosion in household debt. "However, we continue to expect the banks' capitalisation to remain adequately able to absorb the likely increase in credit losses given the weak economic environment and, funding and capital support from the parent banks, if required," Curry said. SUPERANNUATION English said the government had been forced to scrap planned tax cuts, which could have been worth around NZ$2 billion over the next two years, and would also suspend its NZ$2 billion annual contributions to the NZ Superannuation Fund, the state investment fund for long term pension costs, probably for at least a decade. New government spending in the coming year would be reduced to NZ$1.45 billion, with the allowance in future years limited to around NZ$1.1 billion. Budget forecasts showed a 2009/10 cash deficit -- the difference between all operational and capital spending -- of NZ$11.9 billion from the forecast last December of NZ$8.1 billion. A Treasury official said the deficits were the highest since the mid 1980s. The full set of forecasts is available at www.treasury.govt.nz. The government would borrow NZ$8.5 billion in 2009/10 from the December forecast of NZ$7.5 billion, rising to around NZ$11.5 billion in 2011, and around NZ$15 billion each year thereafter. New Zealand has been in recession since the start of 2008 and it was not expected to return to growth until the final quarter of this year, English said. For graphic on New Zealand's net debt and operating balance see http://graphics.thomsonreuters.com/059/NZ_OPBLC0509.jpg (Additional reporting Mantik Kusjanto & Adrian Bathgate; Editing by Dayan Candappa & Kazunori Takada) Email Story IM Story Printable View Blog This Sign in to recommend this article » 0 users recommend Related Articles: Business POSCO agrees iron ore price cut with Rio TintoAFP - Thursday, May 28 CORRECTED - CORRECTED-TREASURIES-Longer-dated bonds inch up in Asia, auctionReuters - Thursday, May 28 Wal-Mart says to launch India store on SaturdayReuters - Thursday, May 28 India Hot Stocks: Indage Vinters up on BSE block dealReuters - Thursday, May 28 Japan Hot Stocks-Taiheiyo Kaiun, Inpex, Aderans, smelters, JVCReuters - Thursday, May 28 Most Popular – Business Viewed Canada's governor eats raw seal heart NZealand zookeeper killed by white tiger: police Climate change: World's destiny at stake Medvedev scolds officials for gloomy forecasts Vitamin D boosts brain power in middle-aged men View Complete List » Search: Home Singapore Asia Pacific World Business Entertainment Sports Technology Top Stories Most Popular Copyright © 2009 Yahoo! 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