Credit Rating Downgrade

Two rating agencies, Standard and Poor’s (S & P) and Fitch downgraded New Zealand’s credit rating from AA+ to AA. This is the first downgrade in 13 years. A credit rating gives some idea of whether the economy is stable and whether the government can pay back debt. The credit rating for Greece at the moment is CCC.

The reasons they gave for downgrading New Zealand to AA were the high foreign debt, high household debt, agriculture debt, insufficient export earnings, the cost of rebuilding Christchurch after the earthquake, and the cost of superannuation with an ageing population. 65 is still the age when retired people can receive superannuation but in some countries, this age has increased to 66 or even higher.

As a result of the downgrade, the government can expect to pay higher interest rates for borrowing money from overseas and we can expect mortgage interest rates for homes to increase. The Kiwi dollar dropped one cent against the US dollar on Friday to 76.5c.

The Labour Party said that the government has not done enough to improve the economy. The Minister of Finance, Bill English, said the downgrade was partly because of the economic problems in the rest of the world which affect all countries including New Zealand.

Vocabulary
rating – a mark to show how good something is; it is similar to a grade
downgrade is to drop a grade or drop a mark
stable – not changing, staying the same, reliable
insufficient – not enough
ageing – growing older
mortgage – a loan to buy a house
affect – (verb) – influence; effect is usually a noun and means a result

Pronunciation
Debt has a silent ‘b’.
Mortgage has a silent ‘t’.

Questions
We have an election on November 26th. Do you think the economy will be an important matter for voters?

The government plans to sell some assets to pay off foreign debt. The Labour Party, on the other hand, is not in favour of selling assets and wants a capital gains tax. The Labour Party would also increase taxes for wealthy people. What do you think?