S&P Global’s credit rating report for Nelson City Council highlights the effect of increased inflation, supply chain issues and interest rates on Council’s finances as well as the continuing impact of the August 2022 weather event. The agency maintained its AA/A-1+ rating with a stable outlook.
Noting a substantial bill to recover from the weather events, the report predicts ‘capital account deficits as it rolls out a large capital program to address repair and resilience work’. However, ‘strong financial management’ and ‘internal policies that set prudent limits on external borrowing, liquidity, and interest-rate risk’ meant S&P was able to continue its support of Council’s credit profile.
One of the key risks faced by Council was the narrowing of margins caused by inflation and high interest rates. The report notes that this could be made more problematic if future rate rises are lower than S&P expects.
Nelson Mayor Nick Smith says inflation, interest rates, and supply chain issues have affected Councils across New Zealand.
“The report notes that every Council in New Zealand is somewhat in the same boat. Increasing costs and higher interest rates are putting pressure on everyone’s budgets. The challenge for us at the moment is to work out how to balance the need for an affordable rate rise in the upcoming Long Term Plan and maintaining strong financial performance.”
The report notes that the effect of the New Zealand government’s water reforms is as yet unknown and that the outcome of this could affect Council’s rating.