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Apparently, the situation in New Zealand is not much different than the situation in America. Yes, just as the credit rating of America has been downgraded by S&P last year, similar is the situation in New Zealand. Just as the S&P had cut down the credit rating of the US from triple A to that of AA+ following their inability to get the required debt relief, it went forward with dealing a similar blow to the New Zealand credit rating too. Moreover, it is not only S&P but the Fitch Ratings too which had downgraded the New Zealand’s credit rating.

Credit rating and debt – New Zealand versus US

While the downgrade in US by S&P was on the long term credit rating from AAA to AA+, in New Zealand, the downgrade by S&P was on the long-term local currency rating from AAA to AA+, long-term foreign currency ratings from AA+ to AA, and short-term ratings had been affirmed at A-1+.

S&P, Moody’s and Fitch Ratings; all had warned US of this impending downgrade. Thus, this downgrade in 2011 August followed from the fact that the US in no way had been able to cut down on its deficit. But, in case of New Zealand, the ratings agencies have mentioned that the debts are still under control in spite of the Global Financial Crises and the earthquakes that roiled Canterbury. At least, that is what Finance Minister of New Zealand, Bill English has claimed.

Thus, the main reason for the downgrade in US is its inability to handle the budget deficit and the increasing sea of debt, the severe debate on the debt ceiling and the eventual raise in the ceiling. On the other hand, in case of New Zealand, the downgrade was brought mainly due to the Government’s inability to drive increased savings. This is supposed to be the primary driver for both of the ratings agencies.

Now, according to the economists in US, bringing down the debt level and tax reforms are going to help a lot in warding off any future downgrades. On the other hand, in New Zealand, the analysts and economists are of the view that capital gains tax which was advocated by the Labor may be able to help in staving off any further downgrades.

So, it can be assumed that the debt situations depending on these downgrades are that – America is on the verge of another recession or collapse while New Zealand is still better off. But, it cannot be denied that both the countries will require to work on their debt situations and try and chip off the debts. This is going to help both the nations in maintaining their credit rating status in the future.

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