Finance Minister Bill English says the downgrade of the country's credit rating partly reflects the global situation rather than New Zealand's own financial position.
Ratings agency Fitch says a high level of external debt is behind the decision to cut the country's rating from AA-plus to AA.
"New Zealand's high level of net external debt is an outlier among rated peers - a key vulnerability that is likely to persist as the current account deficit is projected to widen again," says Fitch's Andrew Colquhoun.
Mr English told Marcus Lush this morning the situation has improved significantly in the past two to three years, but admits it's possible other ratings agencies, Moody's and Standard and Poors, may also be looking to downgrade.
New Zealand has one of the highest levels of household indebtedness at 150 percent of disposable revenue. This figure hasn't declined much at all since 2008.
"We've always known what the issues are and that's why we've been working pretty hard over the last couple of years on getting the Government's debt under control," says Mr English, "because that is an important part of this, but also trying to pull some of the indirect levers to influence our household debt."
New Zealand has been on negative watch for two years. Fitch says the downgrade has more to do with private debt than the Government's.
The kiwi has fallen in wake of the news, currently buying 76.6 US cents.
New Zealand Institute of Economic Research principal economist Shamubeel Eaqub told Fairfax Media the move won't significantly affect lending rates or variable mortgages, and the outlook for New Zealand is still good, compared to the US.
"We haven't had the same extent of pain. Our banks are still strong. Yes, we have a problem, but that hasn't manifested itself in a crisis."
Earlier this week Mr English admitted the May budget's forecast of 4 percent growth and 170,000 new jobs is now looking "unlikely".
“I would expect with the negative mood, especially in the US, and Europe and China slowing a bit, I expect to see those forecasts come back for the next two or three years… I’d say it is going to be a moderate recovery with continued drop in unemployment and interest rates staying low,” says Mr English.
RadioLIVE / 3 News