English says expects NZ net foreign debt to jump to NZ$240 bln within 4 years (Update 1)

Finance Minister Bill English has said Treasury had advised him in the last couple of days that New Zealand's net foreign debt was expected to rise within the next 4 years to around NZ$240 billion from around NZ$170 billion currently. (Update 1 includes details from subsequent news conference on debt risks and the leaky building issue) New Zealand's net debt, most of which is private rather than public debt, stood at NZ$173 billion or 93.7% of GDP (total NZ$185 billion) at the end of the September quarter of 2009, Statistics NZ data shows. Nominal GDP growth of 5% would generate total GDP of NZ$224 billion within 4 years, which implies New Zealand's net foreign debt would rise to over 110% of GDP by then, which for most developed countries would be considered unsustainable. English told the Trans Tasman Business Council this would constrain New Zealand's ability to grow and consume in coming years. "A big portion of our growth will be consumed in servicing that debt," he said. English later told a news conference that New Zealand needed to lift its economic growth to be able to handle this increase in its net foreign debt. He said the government's changes to the tax system and other settings for the economy were designed to lift economic growth over the longer term. He corrected his own comment in the speech to say the Treasury forecast was for an increase to NZ$240 billion in net foreign debt (not NZ$250 billion). An official later confirmed the change. English said there was no evidence that financial markets were worried now about New Zealand being able to service its debts, but that New Zealand needed to reduce its vulnerability to such disruptions in future by limiting the size of the debt growth. He also commented on reports that the central government's involvement in helping to pay for the repair of leaky buildings would pressure its budget. English said decisions about the structure of any leaky building rescue had not been taken, but it was one of the "contingent liabilities" facing the New Zealand economy at a time when its foreign liabilities were also rising. Watch on our video home page here. Watch on YouTube here.