10 Feb 2022

Credit outlook for some local councils turns negative - S&P report

11:15 am on 10 February 2022

The credit outlook for some local governments has turned negative with a one-in-three chance of a credit ratings downgrade over the next two years.

no caption

(File image) Photo: nito500/123RF

A report by global ratings agency Standard & Poors said it was the first time since 2012 the net outlook for local and regional governments had turned slightly negative.

"A negative outlook denotes a roughly one-in-three chance of a (credit rating) downgrade over the next two years," said S&P associate director Martin Foo.

"The sector wide debt for New Zealand councils is already relatively high by global standards and it's going to get higher, so after six council upgrades that occurred 12 months ago, we see the ascending trend in credit quality of the past eight years may have reached a gentle turning point."

S&P director Anthony Walker said the main issue was rising debt levels in 2020, as councils borrowed as part of their response to the Covid-19.

"New Zealand's debt levels ... they're a clear outlier compared to every other system with the same assessments," Walker said, adding there had been a significant spike in total net debt in 2020.

"We did see debt to revenue increase around 15 to 20 percent in that one year - so going from 150 percent to more than 170."

Walker said S&P had to rely on 2020 data, because it was unable to access a consolidated report for 2021.

"Some of the 2021 annual reports haven't been signed off yet, which is very, very slow in a New Zealand context," he said.

"Also getting to the point where we're not looking at lowering the interest rate framework based on their accountability and disclosure, but it is saying why is it so delayed again."

Get the RNZ app

for ad-free news and current affairs