By Alex Tarrant
The rest of the world just loves New Zealand government debt it seems, and Treasury's Debt Management Office has quietly auctioned off NZ$700 million of it over the last week.
As sovereign debt crises in Europe and the US have captured the world's attention, investors have been turning their attention down-under in search of countries and assets perhaps a little more stable than the traditional havens of the US dollar and the euro.
Something New Zealand does have going for it right now is (whether you agree with it or not) an official track to budget surplus by 2014/15, a stable government (with polls indicating it may become even more stable after November 26), and low-levels of public debt compared to its peers in the Northern Hemisphere (although the government's willingness to bail out the private sector has raised some eyebrows).
So despite needing to borrow, on average, about NZ$100 million per week over the next few years in order to pay for government's spending committments (and you can see those in our Budget 2011 section here), Treasury has been out in the global markets soaking up demand for NZ government debt while investors are willing to buy it at low interest rates.
On July 29 and August 2, Treasury's Debt Management office auctioned off NZ$700 million in short and long-term debt.
The DMO auctioned off NZ$400 million in three tranches of Treasury Bills (which have maturities less than one year) on August 2, with NZ$601 million in bids for NZ$200 million of debt maturing on November 30. Demand for shorter-term debt had been falling off since the global financial crisis, while demand for longer-term debt has increased.
The DMO had auctioned off NZ$300 million worth of bonds on July 29, in four tranches out to 2023.
Front-loading over?
Having front-loaded its debt programme in the year to June 30 - borrowing more than it needed in case of a blowup in financial markets - the government has been saying the need for this has been diminishing as its borrowing requirements fall. It should also be remembered the DMO every so often has to roll over expiring debt, meaning a possible spike in issuance. Government bond issues with NZ$8.7 billion outstanding are due to mature on November 15 this year, with investors in the market (not the EQC or RBNZ) holding NZ$7.6 billion.
The government borrowed NZ$19.9 billion in the financial year to June 30 to cover what is likely to be a NZ$16 billion deficit before gains and losses for the year, down from earlier expectations of a NZ$16.7 billion deficit.
Budget documents show an expected deficit before gains and losses of NZ$9.7 billion in the current financial year to June 30, 2012, with an annual budget surplus reached in the 2014/15 year, which would allow the government to begin paying down debt wracked up during the economic downturn over the last three years. The NZDMO has said it expects to issue NZ$13.5 billion of government debt during the 2011/12 year. See it's domestic debt programme here.
'We know it puts pressure on the NZ$'
Today in Parliament before Question Time, Finance Minister Bill English said the government had carried out about as much front-loading as it thought appropriate.
"We’ve now dropped down to about NZ$100 million a week, on average, that we’ll be borrowing over the next few years. It was up at about NZ$370 million, we’re down to about a quarter of what we were," English told media before entering the House of Representatives, from which he was subsequently ejected.
"We’re going to see periodic bouts of crisis and confidence problems in the European and US markets for a number of years, but I think we should get used to that,” English said.
Questions over the debt issues over the last week were best directed to the Debt Management Office, but high levels of demand for our debt was an indication that New Zealand was seen as a “reasonably well organised economy with better prospects than most other developed countries. That’s why investment’s flowing this way."
“Now it’s got its disadvantages because it doesn’t help us with the exchange rate. The key to that is to get our debt down. We’ve got a plan to reduce debt, and we’ve got to stick to that plan," English said.
14 Comments
Only Bill could call for borrowing money to reduce debt and he didn't even flinch.
The definition of insanity as you know is doing the same thing over and over again and expecting a different outcome, as the IMF move towards a one world banking cartel it's easy to see how quickly they will gobble up a small country like NZ.
As mentioned in the article, NZ public debt may be low but our private debt is enormous one small sneeze and our too big to fail banks blackmail the government with a bail-out and that's game set and match to the IMF buying our country for pennies in the dollar.
When we are paying our CGT and private tax to the IMF here is what an executive report from the directors will look like.
Yeah, and these comments in that IMF report pretty well sum the situation up...
"Directors noted the vulnerabilities arising from New Zealand’s large net foreign liabilities and sizeable short-term external debt. They stressed the importance of policy measures to lift national saving and improve productivity, including through fiscal consolidation, tax and welfare reform, and streamlining regulation."
But that's just the IMF what do they know.... - insert sarcastic expression.
@ Alex
You may wish to revise your headline to:
DMO borrows net NZD 125 million
As of 3 August 2011:
$505 million T-bills were redeemed making for a net paydown of $105 million.
And on the non-market T-note front EQC redeemed $70 million of the 2015 issue making for net note issuance of $230 million.
Be that as it may, any idea what % of tax incrase would balance us tomorrow?
The SOE's are a tiny sell off, its plain nuts...its a capex sale to cover opex problems.....I thought we had got past that with Prebble mania.....looks like maybe not.
100million a week is 5200million a year......5billion. about 10% of tax income (50 billion). So total tax take would have to rise 10% ish...
regards
In 1935 New Zealand had a fixed exchange rate ( to sterling, if I'm not mistaken) and exchange control regulations to allocate foreign capital. Today we, and other floating exchange rate regimes, have neither. What could be done then, under a controlled system ( along with most other, now, floating systems) would undermine the integrity of our financial system if done today unless we re-regulated. That brings into play a whole new set of 'nasties'. Even the Japanese and Swiss are having difficulty contolling their economies. A tiny regulated New Zealand system, today, would be cannon fodder for the speculators of the globe.
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