Moody's, while reaffirming its top tier triple A (AAA) rating for New Zealand, said in a new report that global economic and political uncertainty presented downside risks to growth.
It has changed its outlook for New Zealand to "negative" from "stable".
"Inflation pressures also persist, including fuel price increases, stubborn non-tradeable housing costs and utility prices, and higher electricity costs." the agency said.
New Zealand's 'AAA' rating was affirmed by Moody's thanks to support from strong institutions and policy framework, even as it said weaker growth, tight monetary policy and higher debt servicing costs added pressure to the fiscal outlook.
Last month, Fitch lowered New Zealand's outlook to 'negative' from 'stable', citing increasing difficulty in reducing debt due to delayed fiscal consolidation.
In its report Moody's also noted New Zealand's delayed return to a budget surplus and that recent shocks had increased its debt burden.
Finance Minister Nicola Willis told media today the change was "another warning that we can't afford to simply spend more and borrow more, or we risk higher interest rates, higher borrowing costs and more pressure on Kiwi families".
"Global economic and geopolitical uncertainty and inflation pressures, including fuel price increases, have contributed to the revision. While these are outside our control, Moody's are clear that improving our rating requires disciplined spending, a clear path to balanced books and reducing debt."
Willis said servicing debt was now the government's fourth-largest cost - larger than "the combined costs of the police and defence forces, Corrections, Customs and the justice system".
"With global interest rates rising, we must keep our books in order to ensure New Zealand remains strong in a more unstable world."
She noted while 'negative', New Zealand's rating was still "the highest possible level" of 'AAA'.
RNZ business editor Corin Dann said downgrades to outlooks by credit rating agencies could be seen as a warning to countries that unless they started to address their underlying financial positions, they could face a full and potentially more damaging credit downgrade in future.
New Zealand last faced a full rating downgrade in 2011 after the global financial crisis.
- additional reporting by RNZ
