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Wellington, Aug 6 NZPA - An affirmation of New Zealand's credit rating by Standard & Poor's today was used to score political points by Finance Minister Michael Cullen and the National Party's finance spokesman Bill English.

S&P affirmed New Zealand's "AA plus/A-1 plus" foreign currency credit rating and said it has a stable outlook.

It said upgrade to "AAA" would require a significant and sustained improvement in New Zealand's external position.

The credit rating agency is not worried about a change of government and is not currently worried about events in the non-bank sector, but the country's large current account deficit was mentioned as an issue.

The credit rating company expects ongoing fiscal discipline if there is a change of government.

"National welcomes the endorsement of our economic credentials," Mr English said.

Dr Cullen took a swipe at National by saying now was not the time to "flood the market" with New Zealand dollar denominated debt.

National released a plan last weekend to increase investment in infrastructure, partly funded by government borrowing.

"The S&P outlook directly contradicts Labour's campaign to make our plan sound risky," Mr English said.

Kyran Curry of S&P's Sovereign and International Public Finance Ratings group said New Zealand's high net external indebtedness made the banking system very reliant on non-resident funding.

"It (the banking system) remains profitable, adequately capitalised and demonstrates good asset quality by international standards."

Mr Curry said the ratings would be at risk in the unlikely event that the current problems experienced by the non-systemically important non-bank financial institutions sector were to affect the banking sector.

The ongoing credit quality of the major Australian banks will also be relevant to the New Zealand sovereign ratings given their ownership of the major New Zealand banks, which in turn fund the country's external financing needs.

New Zealand had strong fiscal flexibility, political stability and a flexible and resilient economy. But it is small and open and had a high level of external debt and weak external liquidity.

"Personal tax cuts and higher spending on health and education programmes will lead to modest deficits over the next few years. "A weakening economy may also pressure the Government's fiscal position. However, ongoing fiscal discipline is likely to remain the norm, even if there is a change of government at the upcoming election."

The credit rating company said the current account deficit was expected to be in excess of 7 percent of GDP for several years.

Dr Cullen said there has been considerable pressure on credit markets around the world in the wake of the US sub-prime mortgage crisis.

"It is vital for the well-being of New Zealanders that their governments maintain investors' confidence in New Zealand as a place to invest in and to do business with."

New Zealand's credit rating was put on a stable outlook in March 2001. Prior to that it had been on a negative outlook.

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