Martin Whetton: How overseas investors view New Zealand government debt

<p>New Zealand's $33.8 billion record current account deficit was a shock to overseas investors in NZ government bonds, but is ultimately probably not something people will lose a lot of sleep over, says Sydney-based interest rate strategist Martin Whetton.</p><p>Statistics NZ <a href="https://www.interest.co.nz/business/120331/new-zealands-current-account-deficit-widest-record-2022-forecast-narrow-tourism" target="_blank"><strong>last month reported</strong></a> the annual current account deficit reached $33.8 billion last year, equivalent to 8.9% of gross domestic product, the worst ratio since measurement began in 1988. </p><p>In response credit rating agency <a href="https://www.bloomberg.com/news/articles/2023-03-15/new-zealand-credit-ratings-could-come-under-pressure-s-p-says#xj4y7vzkg" target="_blank"><strong>S&P Global Ratings told Bloomberg</strong></a> the deficit was; "catching our attention, the persistently weak and worsening current account position of the New Zealand sovereign, particularly given that it has been quite weak the last year or two and our forecasts are for it to narrow.” This led to fears of a potential downgrade to NZ's S&P sovereign credit rating.</p><p>In terms of overseas investors who buy NZ's government bonds, Whetton says the current account deficit is something they'll look at.</p><p>"And obviously when that number came out recently there was a bit of a shock to the market because there was the immediate response from S&P that suggested that the rating could be under threat as a result," Whetton said in the latest episode of interest.co.nz's <a href="https://www.interest.co.nz/of-interest-podcasts" target="_blank"><i><strong>Of Interest podcast</strong></i></a>.</p><p>"A decision on that can take some time, And I think if we just cool down for a moment and say 'New Zealand is in a very solid position, it has got a strong economy, and it does have very low debt-to-GDP at the government level,' then it's not something that people will lose a lot of sleep over."</p><p>"There are