The cost of a downgrade

Vernon Small in the Dom Post reports on the cost of a credit downgrade:

A 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 as a benchmark, draw a specific link between the country’s 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.

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