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Balance of Payments March 2005 quarter

Balance of Payments and International Investment Position: March 2005 quarter 23 June 2005 Income Earned by Foreign Investors Helps Widen Current Account Deficit

The seasonally adjusted current account deficit increased by $423 million in the March 2005 quarter to reach $2,900 million, Statistics New Zealand said today. As a result, the current account deficit for the year ended March 2005 has widened to $10,349 million (7.0 percent of Gross Domestic Product (GDP)), compared with the December 2004 year deficit of $9,336 million (6.4 percent of GDP) and a deficit of $6,326 million for the March 2004 year (4.6 percent of GDP). The current account measures the value of New Zealand's international transactions in goods, services, income and transfers.

The wider March quarter current account deficit (seasonally adjusted) arose from increased income payable to foreign investors, and lower receipts from foreign tourists. The increased income payable was mainly due to higher profits earned by overseas investors from their New Zealand investments, and increased interest payments by New Zealanders on a higher level of overseas debt. While more overseas tourists visited New Zealand during the March 2005 quarter than in the December 2004 quarter, in total they spent less time here, and on average spent less money per day during their travels in New Zealand.

Partly offsetting these changes were increased receipts by the New Zealand Government of non-resident withholding tax, consistent with higher dividends and interest earned by non-resident investors. The March 2005 year current account deficit was $4,023 million larger than the March 2004 year's deficit. The main factor contributing to the larger deficit was an increase in the investment income deficit (income payable to foreign investors exceeds the income earned from New Zealand's investments abroad). In the year ended March 2005, this deficit was $9,443 million, a rise of $2,637 million over the March 2004 year deficit of $6,805 million.

The increase in the income deficit mainly reflects higher profits earned by foreign-owned New Zealand firms. Interest payable on New Zealand's rising overseas debt, mainly in the form of loans and debt securities, also contributed significantly to the increase in income earned by foreign investors. Further contributing to the rising current account deficit from the year ended March 2004 to March 2005, was the wider goods deficit. The value of imported goods has been rising at a faster rate than the value of exported goods over this period. @

New Zealand's current account deficit is financed by inflows of investment from abroad, recorded in the financial account. A net inflow of $0.2 billion was recorded in the March 2005 quarter, significantly less than the $5.7 billion net inflow in the December 2004 quarter. The March quarter net inflow arose from $6.0 billion of foreign investment into New Zealand (liabilities) exceeding $5.9 billion of New Zealand investment abroad (assets).

The main features of the flow of New Zealand investment abroad were $1.1 billion of net direct investment abroad, featuring corporate sector acquisition activity in Australia; and a $4.9 billion flow of other investment abroad, primarily in the form of loans by the New Zealand banking sector to foreign borrowers.

Foreign investment into New Zealand in the March 2005 quarter featured $8.0 billion of borrowing from abroad. Most of this borrowing involved loans by the New Zealand banking sector, together with an increase in foreign deposits in New Zealand banks.

In addition, non-bank New Zealand corporates also raised loans from abroad. The increased borrowing was partly offset by a $2.5 billion decrease in foreign holdings of New Zealand Government and private sector issued debt securities.

Ian Ewing

Acting Government Statistician


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