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HONG KONG, May 27 (Reuters) - A rise in New Zealand's operating deficit to 5 percent of gross domestic product over the next three to four years in itself will not trigger a credit downgrade, a Fitch Ratings analyst said on Wednesday.
New Zealand will release its government budget on Thursday and analysts expect it to show the deficit to peak around NZ$10 billion ($6.2 billion), or 5 percent of GDP, in 2012 or 2013, before starting to narrow.
Investors have been focusing on the budget especially after Standard & Poor's cut its rating outlook on New Zealand to negative from stable in January, citing concerns over ballooning fiscal and current account deficits. For a scenarios piece on how market might react to Thursday's budget see
Fitch credit analyst Ai Ling Ngiam told Reuters in a phone interview that any rating change would require further assessment of public finances as well as the current account balance. For a factbox on New Zealand fiscal position see
"An operating deficit of 5 percent may not result in a downgrade in NZ's rating or outlook. Fitch will be observing the medium term outlook for both the fiscal deficit and public debt," she said.
"An actual rating change assessment will require not just public finances but also the current account deficit financing. There are concerns about rollover risk in terms of external debt."
Fitch would be meeting with government officials next week for a full assessment, Ngiam added. Fitch rates New Zealand AA-plus with a stable outlook.
In February, Fitch said vulnerabilities on the external front were weighing down on the rating and that there were hurdles in raising finances in international markets amid tight credit conditions and a sharply weaker New Zealand dollar.
But Ngiam said: "There is a deterioration of public finances but on the external finances side there is an unwinding, deleveraging of debt. One is worsening, one is improving. We need to assess." (Reporting by Umesh Desai; Editing by Kazunori Takada)