The cost of a downgrade
Vernon Small in the Dom Post reports on the cost of a credit downgrade:
A credit rating downgrade could hit New Zealand hard, adding $600 million a year to our interest bill, equal to twice the cost of the new Wellington Hospital in Newtown, officials have warned.
In a background paper obtained by The Dominion Post, Treasury officials, using Ireland as a benchmark, draw a specific link between the country’s credit rating which agencies say is threatened unless debt is brought under control and social spending.
The paper cautions that, although extra borrowing is economically attractive in the short term, the cost of continued use of debt would rise exponentially.
And that $600 million a year is basically just wasted money. There is no guarantee we will avoid a credit downgrade, but I want the Government to be working hard to do so.
May 11th, 2009 at 12:09 pm
The cost of a downgrade would also flow into the private sector because of the sovereign cap, therefore and the cost of their borrowings would also rise. But for me I think NZ is grossly over borrowed and making debt slightly more expensive may not be such a bad thing.
May 11th, 2009 at 12:26 pm
“In a background paper obtained by The Dominion Post, Treasury officials, using Ireland as a benchmark, draw a specific link between the country’s credit rating which agencies say is threatened unless debt is brought under control and social spending.”
One would hope that Key takes note of this, particularly the social spending component.
May 11th, 2009 at 12:34 pm
Only a 22% chance of happening, according to iPredict.
May 11th, 2009 at 12:50 pm
someone tell David Parker ………….. Trev ………. over to you